America's War on Crypto

The crypto industry recently held a Consensus 2023 industry event in Austin, Texas. It was a 3 day event featuring numerous panels/sessions with speakers/representatives from both crypto and non-crypto companies/industries as well as representatives from various government regulators.

The event covered many topics including:

• efforts by large, mainstream companies like PepsiCo that are looking for opportunities in the crypto space
• a merger of traditional finance with blockchain governance
• plans by large banks to innovate in tokenizing traditional-financial assets

Crypto isn't just the wild west purview of money launderers and dark web ne'er do wells. There is serious financial/corporate activity happening in the crypto world now.

Valid Criticisms or Propaganda?​

Anti-crypto voices have tried to vilify the crypto industry on environmental concerns - claiming that crypto consumes too much energy. However, like most nascent technologies, they evolve with innovation when there is sufficient interest.

Bitcoin (BTC) was the first crypto coin and it was built on a "proof of work" model. This model is energy intensive by design and it also didn't scale well for handling a large volume of transactions. So, "proof of stake" crypto were developed that were orders of magnitude more efficient and scalable. Ethereum (ETH) transitioned from a proof of work model to a proof of stake model for this reason - and it's still not done being developed. Stellar (XLM) was developed on another "proof of agreement" model that claims to be several more orders of magnitude more efficient than proof of stake models - and even more energy efficient than traditional finance like credit cards:

Electricity Consumption of a Distributed Consensus Algorithm | LUP Student Papers

The efficiency of proof of work and proof of stake based cryptos are still being improved in many cases by the development of new technologies like parallel blockchains (aka parachains, cross chains, etc.) that distribute transaction loads and zero knowledge proofs (which could be very significant for Bitcoin in particular).

In addition to the developers of various crypto projects being sensitive to the energy costs from a design standpoint, the decentralized network of node operators (and bitcoin miners) that implement the crypto protocols (than operate the computer servers on the network) are also increasingly using more green energy sources:

... There has also been a shift toward using more renewable energy sources to power cryptocurrency mining. One 2020 study found that around 39% of the energy consumed by PoW cryptocurrencies is from renewable energy sources, up from 28% reported in a previous study. This percentage is likely to rise as renewables become more affordable in the future.
...

Biden's 30% Crypto Electricity Tax May Be Too Blunt A Solution

In his latest budget for Fiscal Year 2024, President Biden has proposed a new tax on electricity use from cryptocurrency mining.

www.forbes.com

Crypto Threatened by Government Hostility​

The Biden administration has been very open about their hostility to the crypto industry:

It’s a safe bet that 80-year-old President Biden—like his 76-year-old predecessor—has never bought Bitcoin, used a stablecoin, or tried out Web3. But that didn’t stop Biden’s underlings at the White House from issuing a blog post on Friday, decrying crypto as predatory and dangerous. The document reads like a diatribe and even has a whiff of moral panic—as if Biden had instructed the makers of Reefer Madness to turn their attention to digital currency.
...

The Biden White House just rolled out some of its most anti-crypto language yet. They may regret it

The White House rolled out an aggressive anti-crypto stance that could come to bite Democrats in the long term.

fortune.com

The White House Council of Economic Advisers delivered a 35-page takedown of the idea that digital assets like Bitcoin are useful as an alternative to government-backed currency, the claim that crypto’s underlying distributed ledger technology could have some utopian application, and the notion that it could serve as a hedge against inflation.

“Although the underlying technologies are a clever solution for the problem of how to execute transactions without a trusted authority, crypto assets currently do not offer widespread economic benefits,” the council writes. “They are largely speculative investment vehicles and are not an effective alternative to fiat currency. Also, they are too risky at present to function as payment instruments or to expand financial inclusion.”

The extended crypto criticism, which fills one chapter in a book-length annual report the White House sends to Congress each year, represents a stark change in tone from President Joe Biden’s administration.

One year ago, Biden signed an executive order asking federal agencies to look at ways of curtailing the risks of crypto without stifling “financial innovation.” This week’s report makes clear the White House thinks crypto can’t innovate much besides the same kinds of financial disasters that prompted Congress to regulate the banking industry a century ago.
...

White House Slams Crypto As Offering 'No Widespread Economic Benefits'

The Biden administration has soured on crypto after several high-profile industry failures.

www.huffpost.com

Crypto faces similar hostility within the legislative branch from a group of Senators led by Elizabeth Warren.

...
Now, influential Democrat senator Elizabeth Warren has signaled she's "building an anti-crypto army" as part of her re-election campaign following a warning from crypto lobby group Coin Center that a crackdown on TikTok could pave the way for a bitcoin ban.

"I’m in this fight to put our government on the side of working families," the former U.S. presidential hopeful posted to Twitter, embracing a quote from a recent Politico profile that said she's "building an anti-crypto army."

Warren, who is on the Senate Banking Committee that oversees the U.S. Securities and Exchange Commission (SEC), has been at the vanguard of a slew of anti-bitcoin and crypto bills that have been introduced over the last year.
...

Elizabeth Warren Is Building An ‘Anti-Crypto Army’—Feeding Serious U.S. Bitcoin Ban Warnings

Bitcoin and crypto companies are struggling with the growing possibility that the U.S. is trying to "quietly" ban bitcoin...

www.forbes.com

Three Pronged Attack​

The American government is currently employing a three pronged attack on the crypto industry in an attempt to suffocate it.

Prong number one makes headlines in most news media and involves the SEC purposefully maintaining vague guidance and attacking companies with lawsuits. Their behavior has been so egregious that it has drawn dissent from their own ranks and from Congress. The SEC has apparently been tasked to be the Biden administration's Shawshank warden Samuel Norton in obtusely responding to the crypto industry. There really isn't any other way to explain SEC chair Gensler's blatant hypocrisy.

Prong number two has flown under the radar of most news media and involves the revival of Operation Choke Point - an Obama era program that aimed to de-bank lawful industries that the administration disfavored. The operation was shut down circa 2017, but is now making a comeback targeting the crypto industry. Cooper & Kirk, a law firm that sued FDIC, OCC & Fed over the original Operation Choke Point, published a detailed summary of Operation Choke Point 2.0.

Former Congressman Barney Frank, a board member of Signature Bank, alleged that the bank was solvent and seized by regulators to debank it's crypto clients. The move sparked contagion in the regional banking industry and prompted some members of Congress to question the FDIC's actions. When the FDIC solicited bids for Signature bank, they split off Signature's crypto clients effectively de-banking them.

The third prong involves legislation and executive orders designed to handcuff the crypto industry including increasing taxes on bitcoin miners and regulations.

Stablecoins - Kind of a Big Deal​

Stablecoins, such as US Dollar Coin (USDC) and Tether (USDT), are cryptocurrencies that are backed by national currencies. They are essentially tokenized forms of the underlying legal tender they represent. Unfortunately for the Federal reserve, US Treasury Dept., etc., they enable transactions that do not process through the US banking system. As such, they have drawn particular interest from the Biden administration.

Stablecoins provide an open door for global entities to conduct dollar denominated transactions that could bypass US sanctions. They provide an opportunity for people in nations with high inflation to save money in dollar denominated currency that bypasses official dollar exchanges (or prohibitions). The adoption and growth of stablecoins would appear to be a direct threat to any possible plans for a Central Bank Digital Currency (CBDC).

Futile and Stupid Gesture​

The Biden administration's effort are provoking a chilling effect of the domestic crypto industry and forcing much of America's leadership in innovation and development to expatriate to friendlier shores. What the Biden administration does not appear to realize is that crypto is global. They are not going to be able to choke the global industry with an iron fist. Pandora's box has been opened. The crypto industries will continue to innovate and grow with new financial and commercial applications. It will be a true shame if America abdicates their position in leading the charge.

 

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U.S. Senator Cynthia Lummis (R-WY) sent a letter to Federal Deposit Insurance Corporation (FDIC) Chair Marty Gruenberg after her office was contacted by whistleblowers alleging the FDIC was destroying materials with respect to the digital asset activities of the agency and threatening retaliation against staff for speaking out. The letter demands Chair Gruenberg and his staff immediately cease and desist from these actions in preparation for Congressional oversight in the coming months.

“The FDIC’s alleged efforts to destroy and conceal materials from the U.S. Senate related to Operation Chokepoint 2.0 is not only unacceptable, it is illegal,” said Lummis. “If it is uncovered that anyone within the FDIC has knowingly destroyed materials or sought to obstruct the oversight functions of the Senate, it will result in swift criminal referrals to the U.S. Department of Justice. The American people deserve transparency, and I will see to it that they get the answers they deserve.”

Lummis Demands FDIC Immediately Halt Destruction of Operation Chokepoint 2.0 Materials » Senator Cynthia Lummis

Washington, D.C.— U.S. Senator Cynthia Lummis (R-WY) sent a letter to Federal Deposit Insurance Corporation (FDIC) Chair Marty Gruenberg after her office was contacted by whistleblowers alleging the FDIC was destroying materials with respect to the digital asset activities of the agency and...

www.lummis.senate.gov

The letter:

https://www.lummis.senate.gov/wp-content/uploads/Sen.-Lummis-FDIC-Doc-Preservation-Letter.pdf

 

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Bold emphasis is mine:

On January 20, 2025, Travis Hill became Acting Chairman of the Federal Deposit Insurance Corporation (FDIC). Acting Chairman Hill issued the following statement:

“It is my honor and privilege to serve as Acting Chairman of the FDIC. While the FDIC faces a broad range of issues, and as always will fulfill our mandate to promote a safe, sound, and resilient banking system, below is a list of matters I expect the FDIC to focus on in the coming weeks and months.”

• Conduct a wholesale review of regulations, guidance, and manuals to ensure our rules and approach promote a vibrant, growing economy.
• Adopt a more open-minded approach to innovation and technology adoption, including (1) a more transparent approach to fintech partnerships and to digital assets and tokenization, and (2) engagement to address growing technology costs for community banks.
• Improve the bank merger approval process and replace the 2024 Statement of Policy to ensure that merger transactions that satisfy the Bank Merger Act are approved in a timely way.
• Withdraw problematic proposals from the past three years, such as proposals on brokered deposits and corporate governance.
• Improve the supervisory process to focus more on core financial risks and less on process, and reevaluate the supervisory appeals process.
• Enhance our readiness and preparedness for resolving large financial institutions, incorporating lessons from the far-too-costly failures of 2023, including the need to be much more proactive and nimble and to improve the bidding process.
• Pursue adjustments to our capital and liquidity rules to appropriately balance driving economic growth with ensuring safety and soundness and resilience to shocks.
• Encourage more de novo activity so there is a healthy pipeline of new entrants in the banking sector.
• Work to ensure law-abiding customers have, and do not lose, access to bank accounts and banking services.
• Modernize implementation of the Bank Secrecy Act.
• Study deposit behavior to develop a more sophisticated understanding of the relative stability of different types of deposits and depositors.
• Reevaluate our disclosure practices, and expand transparency in areas that do not impact safety and soundness or financial stability.
• Ensure the FDIC remains within our statutory mandates, and stops coloring outside the lines.
• Pursue internal efficiencies to ensure we are serving as responsible stewards of the Deposit Insurance Fund.
• Reestablish a strong workforce culture, where misconduct is not tolerated and those who engage in misconduct are held accountable.

Statement from Acting Chairman Travis Hill | FDIC.gov

WASHINGTON – On January 20, 2025, Travis Hill became Acting Chairman of the Federal Deposit Insurance Corporation (FDIC). Acting Chairman Hill issued the following statement:“It is my honor and privilege to serve as Acting Chairman of the FDIC. While the FDIC faces a broad range of issues, and...

fdic.gov

Operation Chokepoint 2.0 is over.

 

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Today SEC Acting Chairman Mark T. Uyeda launched a crypto task force dedicated to developing a comprehensive and clear regulatory framework for crypto assets. Commissioner Hester Peirce will lead the task force. Richard Gabbert, Senior Advisor to the Acting Chairman, and Taylor Asher, Senior Policy Advisor to the Acting Chairman, will serve as the task force’s Chief of Staff and Chief Policy Advisor, respectively.

Drawing from talented staff across the agency, the Task Force will collaborate with Commission staff and the public to set the SEC on a sensible regulatory path that respects the bounds of the law. To date, the SEC has relied primarily on enforcement actions to regulate crypto retroactively and reactively, often adopting novel and untested legal interpretations along the way. Clarity regarding who must register, and practical solutions for those seeking to register, have been elusive. The result has been confusion about what is legal, which creates an environment hostile to innovation and conducive to fraud. The SEC can do better.

The Task Force’s focus will be to help the Commission draw clear regulatory lines, provide realistic paths to registration, craft sensible disclosure frameworks, and deploy enforcement resources judiciously.

The Task Force will operate within the statutory framework provided by Congress and will coordinate the provision of technical assistance to Congress as it makes changes to that framework. The Task Force will coordinate with federal departments and agencies, including the Commodity Futures Trading Commission, and state and international counterparts.

“I look forward to the efforts of Commissioner Peirce to lead regulatory policy on crypto, which involves multiple SEC divisions and offices,” said Acting Chairman Uyeda.

“This undertaking will take time, patience, and much hard work. It will succeed only if the Task Force has input from a wide range of investors, industry participants, academics, and other interested parties. We look forward to working hand-in-hand with the public to foster a regulatory environment that protects investors, facilitates capital formation, fosters market integrity, and supports innovation,” stated Commissioner Peirce.
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SEC.gov | SEC Crypto 2.0: Acting Chairman Uyeda Announces Formation of New Crypto Task Force

www.sec.gov

This is good news. Uyeda and Pierce have been reasonable and fair actors on the SEC board that were outnumbered by Gensler and puppets. Now they are in a position to set policy.

 

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Opinion piece.

The release of Ross Ulbricht and the lifting of sanctions on Tornado Cash mark pivotal moments for the crypto community. It’s more than symbolic. It’s an opportunity to clearly rebrand the U.S. as a safe place to build the internet of money.

Ross Is Free. Now Let’s Free the Internet-of-Money

Following Ross Ulbricht's pardon, the Trump Administration must follow through on crypto’s potential to spread privacy and financial innovation.

www.coindesk.com

 

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Today we, along with some of the most important crypto companies and investors, received a letter from @GOPoversight asking for information on the recent debanking of lawful companies and individuals.

We’re grateful for @RepJamesComer’s leadership on this critical issue.


...
Back in March ‘23 we filed FOIA and FOIL requests to further investigate communications between regulators and banks to determine if there was direct instruction to restrict access to crypto companies.

We’re still waiting on responses. <i></i>
6/ We also launched an anonymous tipline for those impacted by debanking…

debanked@theblockchainassociation.org

…to gather stories and information. <i></i>
7/ Following our investigation, a clear pattern emerged: legal businesses and individuals were systematically denied access to banking, often with little to no explanation.

Understandably, those impacted felt compelled to stay silent – or only share their stories confidentially. <i></i>
8/ But the tide is turning and there is new leadership in DC that is committed to ending this unlawful, discriminatory practice.

And we remain committed to listening to industry, companies, and individuals who have experienced this first hand – and amplifying their stories. <i></i>
9/ This saga shows why many are drawn to crypto in the first place. We want to live in a world where everyone controls their own financial destiny, free from undue political interference.

Individuals in a lawful industry shouldn’t be punished because of overzealous regulators. <i></i>
...

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@BlockchainAssn: 1/ Today we, along with some of the most important crypto companies and investors, received a letter from @GOPoversight asking for information on the recent debanking of lawful companies and individ...…

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