The cryptocurrency industry has grown rapidly in recent years, with an increasing number of businesses and individuals using digital assets for transactions and investments. However, this growth has also attracted the attention of regulators, who are seeking to regulate the industry to prevent fraud and protect investors.
Amid these efforts, there are concerns that regulators may be targeting legitimate cryptocurrency businesses and pushing them out of the banking system. These concerns have been exacerbated by allegations of a coordinated effort known as Operation Chokepoint 2.0, which seeks to cut off the cryptocurrency industry from banking services.
In this article, we will explore the potential implications of this initiative, the history of its predecessor, and the consequences and effects of a targeted crackdown on a legal industry.
What is Operation Chokepoint 2.0?
The history of Operation Choke Point provides important context for understanding the potential implications of Operation Choke Point 2.0. The original Operation Choke Point, launched by the Obama Justice Department in 2013, targeted legal but undesirable industries such as payday lenders and gun manufacturers.
Despite being executed under the guise of anti-money laundering efforts, critics ultimately condemned it as an abuse of power, arguing that it had harmed lawful financial service providers by causing collateral damage to other industries.
Operation Chokepoint 2.0 is a crackdown on the banking and lending practices as they relate to businesses which deal in cryptocurrency and stablecoins. Basically, through complicated legal processes, the US government can force the bank account of a cryptocurrency company to be shut down without notice, all under the guise of preventing fraud. They also are currently discouraging banks from taking on accounts of companies who deal in crypto.
This has already happened to several cryptocurrency companies from LBRY, to Beaxy, and some more trusted platforms like Coinbase and Kraken are currently facing the fact that they too may soon go head to head with the SEC.
This will leave many companies and industries which deal in crypto without a method of banking or storing funds which will make it difficult to hire employees, take investments, and operate a company in general.
Critics argue that this push to debank crypto firms could create a chilling effect on innovation and investment in the sector, lead to a loss of jobs and investment in the United States, and push cryptocurrency businesses to seek banking services overseas which could make investing in cryptocurrency even more dangerous than it already is (not to mention deepen the current recession!)
Related: KYC and AML: How it Applies to Bitcoin in the USA
Consequences of the Push to Debank Crypto Firms
The push to debank crypto firms has unintended consequences that could have a significant impact on the cryptocurrency industry and its customers. One immediate effect of this push has been the growing disinterest in the U.S.-regulated and broadly trusted stablecoin USDC, and an increased interest in tether (USDT), an unregulated offshore service. As a result, there is a growing concern about the stability of USDC and its long-term impact on the cryptocurrency industry.
Furthermore, banks in Europe and the Caribbean have reported increased interest from cryptocurrency firms looking for alternative banking options. This could lead to crypto firms being pushed entirely out of U.S. jurisdictions and into the arms of other governments who don’t care about the US banking regulations or the stability of US citizen investments in various companies.
Plus, employees in these companies everywhere will lose their jobs, as the US will lose a chunk of it’s GDP. Therefore, the already established recession could be worsened as more companies of the future take their operations elsewhere.
Related: The Stable Act: US Regulations on Stablecoins.
The History of Operation Chokepoint
Operation Choke Point was an Obama Justice Department effort launched in 2013 to lean on banks that served gun manufacturers, payday lenders, and other legal but undesirable industries. The operation was executed under the guise of anti-money laundering efforts, but critics, including former regulators and the House Financial Services Committee, ultimately condemned it as an abuse of power. Critics further concluded that Operation Choke Point had harmed lawful financial service providers by causing collateral damage to other industries.
New restrictions were placed on the power of the FDIC in the wake of Choke Point, in part to settle lawsuits brought by victims of the crackdown. These restrictions included limitations on the FDIC's ability to interfere with banks' customer relationships and a requirement that all efforts to terminate such relationships be expressed in writing.
Informal or unwritten suggestions were also restricted, which could be a significant reason why regulators and others continue to deny the targeted crackdown on a legal industry. Although Choke Point is no longer active, it continues to be a topic of controversy and discussion, especially as the cryptocurrency industry is beginning to experience similar sanctions.
Potential Long Term Effects of a Crypto Crackdown
A crackdown on the cryptocurrency industry could have many potential long term effects, both intended and unintended. The main unintended effect is the fact that many legitimate coins have begun to lose market share in favor of projects which may not be on the up-and-up.
Plus, many individuals have lost their jobs as their companies have moved overseas to seek out countries with easier banking regulations. Not to mention that cryptocurrency and technology is the future, whether we are involved in it or not. This means that if cryptocurrency companies continue to move to other countries, the US will be technologically behind and unable to keep up with other world powers who are becoming big players in the political sector.
As the cryptocurrency industry continues to evolve and grow, it is important for regulators to strike a balance between preventing fraud and protecting investors while also fostering innovation and growth. While efforts to regulate the industry are necessary, a targeted crackdown on a legal industry could have unintended consequences that harm not just the cryptocurrency industry, but the broader banking sector and the economy as a whole.
This is a developing story. Updates will be posted in future blog articles.
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