For crypto companies, it has always been a challenge to obtain access to the traditional banking system. Despite this, a few boutique banks have continued to serve crypto startups. This has led to the rise of stablecoins like Tether, which offer fiat settlement when traditional banking options are not available. In recent weeks, the Biden administration has increased its efforts to isolate the crypto space from the traditional banking system. This plan involves multiple agencies such as the Biden administration, Congress members, the Fed, FDIC, OCC, and DoJ. Let’s dig into how the US crypto ban might be already in place, by going through the events by timeline.
Banks Scolded by US Senators
On December 6, Senators Elizabeth Warren, John Kennedy, and Roger Marshall sent a letter to the crypto-friendly bank Silvergate. The letter criticized the bank for providing services to FTX and Alameda research and for failing to report suspicious activities associated with these clients.
Signature Bank Announces Intent to Halve Deposits
On December 7, Signature Bank, one of the most active banks serving crypto clients, announced its intention to halve the deposits assigned to crypto clients. This means that the bank will give customers their money back and then shut down their accounts. The bank will also exit its stablecoin business, which was at its peak at $23 billion and is now down to $10 billion.
Joint Statement by Fed, FDIC, and OCC
On January 3, the Fed, FDIC, and OCC released a joint statement on the risks to banks engaging with crypto. While the statement did not explicitly ban banks’ ability to hold crypto or deal with crypto clients, it strongly discouraged them from doing so on a “safety and soundness” basis.
On January 9, Metropolitan Commercial Bank, one of the few banks that serve crypto clients, announced a total shutdown of its cryptoasset-related vertical.
Silvergate Stock Falls to Low
Also on January 9, Silvergate stock fell to a low of $11.55 due to bank run and insolvency fears. The stock had traded as high as $160 in March 2022.
Binance Limits User Fiat Transactions
On January 21, Binance announced that due to policy at Signature Bank, they would only process user fiat transactions worth more than $100,000.
Federal Reserve Denies Crypto Bank Custodia’s Application
On January 27, the Federal Reserve denied crypto bank Custodia’s two-year application to become a member of the Federal Reserve system, citing “safety and soundness” risks. The Kansas City Fed branch also denied Custodia’s application for a master account, which would have given it the ability to use wholesale payment services and hold reserves with the Fed directly.
Fed Issues Policy Statement
On the same day, the Fed also issued a policy statement that discouraged banks from holding crypto assets or issuing stablecoins. The statement broadened their authority to cover non-FDIC insured state-chartered banks, in response to the Wyoming Special Purpose Depository Institutions (SPDIs) like Custodia, which can hold crypto alongside fiat for its banking customers.
National Economic Council Releases Policy Statement
On January 27, the National Economic Council released a policy statement that strongly discouraged banks from transacting with crypto assets directly or maintaining exposure to crypto depositors.
DoJ’s Investigation into Silvergate
On February 2, the DoJ’s fraud unit announced an investigation into Silvergate over their dealings with FTX and Alameda.
Conclusion
With all the above, it seems that the US is following China’s path into a widespread US crypto ban. This not only affects the crypto market in the States, but also worldwide. The US is one of the biggest markets for crypto. With less demand, prices should most likely fall. This of course stays in effect until the new elections come, and we remain on the lookout for the new administration that comes.
This article was made possible thanks to the Pirate Wires piece titled “Operation Choke Point 2.0″.
