Unwinding the hyperbole: Are US-based crypto firms really being ‘choked’? (2023)

An extended market price drawdown (crypto winter) throughout 2022 has tested the crypto industry’s mettle, and more recently, a crackdown by United States regulators on some prominent entities like Coinbase, Binance and Kraken has further shaken the sector.

So maybe it’s only natural for the industry to employ colorful, vivid language to describe what’s been happening. There’s a notion making the rounds that the U.S. government is out to “un-bank” or “de-platform” the crypto sector. This process even has a name: “Operation Choke Point 2.0.”

U.S. President Joe Biden’s administration is using the financial rails “as an extra-judicial political cudgel” to crack down on the crypto industry, wrote Castle Island Ventures’ Nic Carter, who described it as a coordinated, multi-agency effort to discourage banks from dealing with crypto firms.

According to Carter, this alleged strategy follows a template used earlier by the Obama and Trump administrations. In 2018, under federal pressure, “Bank of America and Citigroup de-platformed firearms companies, and BoA began to report client firearm purchases to the federal government,” he wrote.

In late March, Quantum Economics’ Mati Greenspan told Cointelegraph that this so-called un-banking could “already be underway,” particularly in light of the recent collapses of crypto-friendly banks like Silvergate, Silicon Valley Bank and Signature Bank. In Greenspan’s view:

“Crypto is seen as a ‘threat’ to the U.S. dollar’s dominance in global trade — a significant and long-standing benefit to the U.S.”

In that same article, attorney Michael Bacina warned that the “regulation by enforcement model” being practiced in the U.S. would simply “drive crypto-asset innovation offshore,” and on April 1, the CEO of a French digital assets data provider told The Wall Street Journal that U.S. agency actions could “shift the center of gravity of crypto assets trading and investments” toward Hong Kong.

A coordinated effort by regulators?

It’s time to step back and ask: Are these fears justified? It is sometimes difficult to separate the truth from the tight knot of hyperbole in the crypto space, but are U.S. regulators really seeking to “de-platform” crypto?

“I don’t think there’s necessarily a concerted or intentional effort by regulators to ‘de-platform’ crypto,” David Shargel, a partner at the Bracewell law firm, told Cointelegraph. “But, the crypto ecosystem has moved from a niche product to the mainstream, and regulators are playing catchup.” Regulators also recognize that crypto isn’t going anywhere, he added.

(Video) Unwinding the hyperbole: Are US-based crypto firms really being ‘choked’?

Does the suggestion that cryptocurrencies represent a threat to the U.S. dollar’s dominance in global trade provide a further incentive to ban them?

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Crypto may indeed have the potential to disrupt global trade flows — at least to some minor degree — but the dollar is more threatened by other geopolitical factors “such as the U.S.’ own waning influence on the global stage, the rise of China, and Western sanctions on Russia,” Zhong Yang Chan, head of research at CoinGecko, told Cointelegraph.

Recently, International Monetary Fund experts said, “Crypto assets, including stablecoins, are not yet risks to the global financial system.”

“The general consensus seems to be that the dollar remains well entrenched as the world’s dominant currency, and that the use of cryptocurrency, standing alone, won’t change that — barring some other major political or economic shift,” Bracewell’s Shargel added.

“A perfect storm brewing”

Still, the administration in Washington may be getting nervous about the U.S. dollar, said John Deaton, a managing partner at Deaton Law Firm, who also runs the CryptoLaw website, and has supported Ripple in its litigation with the U.S. Securities and Exchange Commission (SEC). Speaking to Cointelegraph, he said there is a convergence of issues at play here:

“China and Russia have agreed to trade oil and gas in the Chinese yuan, not U.S. dollars. Kenya’s president has told his people to dump their USD. Saudi Arabia may agree to trade oil in non-USD denominations.”

At the same time, the U.S. government needs to print more money, adding to an already high inflationary environment, leading people to look at gold, silver and Bitcoin (BTC) as alternatives. “The fear isn’t just about crypto — it’s that a perfect storm is brewing against the U.S. dollar,” Deaton said.

Deaton deems the Operation Chokepoint 2.0 scenario plausible, but he also has a nuanced view of crypto regulation and U.S. regulators. “If we are being honest, the crypto industry has caused itself quite a few self-inflicted wounds, and the industry is to blame for giving itself a black eye when it comes to public perception.” Many in the crypto industry, like himself, “don’t oppose regulation; we seek it,” he said, adding:

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“We just want smart, tailored legislation that protects investors from fraud but provides entrepreneurs with clear rules and guidance, and fosters innovation.”

Dealing Binance a ‘fatal blow’?

Deaton was asked about another suggestion heard last week that the U.S. Commodity Futures Trading Commission (CFTC) is “attempting to strike a fatal blow to Binance” with its recently announced lawsuit against the world’s largest cryptocurrency exchange. Is that really the commission’s end game?

1/23

Oh boy https://t.co/2JnbfirRrp

Case is up and it's bad.

This is the CFTC attempting to strike *fatal* blow to Binance, and at first read through... I think they actually have really strong chances here of succeeding in toppling the Binance empire.

— Adam Cochran (adamscochran.eth) (@adamscochran) March 27, 2023

“If you look at the CFTC’s case against Binance in a vacuum, I would agree that it is hyperbole to suggest that it is a regulatory attempt to cause a death blow to Binance,” said Deaton. “Binance, like many other entities that grew very fast and very quickly, may have cut corners. If so, they will pay a big fine and move on.”

The problem is that the Binance suit comes after Coinbase received a Wells notice from the SEC, and the government’s seizure of Signature Bank, with reports that the Federal Deposit Insurance Corporation wanted all crypto depositors out before it would allow a sale of that bank. “When you add those things together, it appears like coordination, not coincidence,” Deaton told Cointelegraph.

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“Hyperbole seems to drive the crypto news cycle,” commented Bracewell’s Shargel when asked about the industry’s response to the recent CFTC action against Binance. “The CFTC’s lawsuit is certainly serious, but it’s probably too soon to call it a fatal blow.”

In its complaint, the CFTC asked the court to impose several penalties, including a permanent bar on Binance and its CEO, Changpeng Zhao, from the commodities markets. “But, for now, the complaint is just a complaint, and the outcome of the case — whether through settlement or otherwise — remains to be seen,” said Shargel.

The view from abroad

Viewed from overseas, recent U.S. regulatory actions are sometimes difficult to fathom. Syren Johnstone, executive director of the compliance and regulation program at the University of Hong Kong — and author of the book Rethinking the Regulation of Cryptoassets — has been disappointed with the U.S. SEC’s seeming attempt to label everything a security.

“None of the regulatory approaches I’m seeing globally truly promote innovation,” Johnstone told Cointelegraph. “Dumping everything crypto into a financial markets context is straight-jacketing the greater potential for the technology.”

Other countries are closely following recent U.S. regulatory actions, though not necessarily approvingly. “Overseas regulators are looking at the U.S. approach to crypto assets as a situation they want to avoid,” Johnstone noted.

“Globally, there are concerted efforts to bring greater regulatory oversight to crypto,” added CoinGecko’s Chan. “However, each country has its own legal system, and different countries may take different paths toward regulating crypto activities. This may include placing crypto under the ambit of securities, but there may also be other possible paths such as classifying crypto as payments instruments, or commodities.”

Time to cool down the hype?

If the industry continues to use the language of persecution, could it potentially hurt — rather than support — crypto adoption? Shargel commented:

“I’m not sure if hyperbole serves the wider cause of crypto or blockchain adoption, but it might help to coalesce the crypto community, especially as regulators seem to be expanding their enforcement dragnet.”

“I do not believe it is hyperbole to say the U.S. government has initiated a war or campaign against crypto,” opined Deaton. “Operation Chokepoint 2.0, which Nic Carter warned people about, has been proven accurate. Some said he was a conspiracy theorist or engaging in hyperbole. He wasn’t either. The regulators protect the status quo, which means they protect the incumbents in power from the disrupters who are gaining traction or market share. That’s what we are witnessing.”

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A downbeat President’s report

Elsewhere, many in the crypto community were disappointed by the Biden administration’s recent economic report, which devoted 35 of its 507 pages to digital assets. Dan Reecer, chief growth officer at decentralized finance platform Acala Network, called it “an attack on crypto,” adding that it was released “just days after Operation Chokepoint 2.0 was executed on crypto-friendly banks.”

Admittedly, the report wasn’t exactly a ringing endorsement of cryptocurrencies. “Crypto assets currently do not offer widespread economic benefits. They are largely speculative investment vehicles and are not an effective alternative to fiat currency,” it declared.

However, there is nothing in the report that describes crypto as threatening U.S. dollar dominance in global trade or about a pressing need to “de-platform” crypto entities.

On the contrary, the report acknowledged that cryptocurrencies “underlying technology may still find productive uses in the future as companies and governments continue to experiment with DLT [distributed ledger technology].” It conceded that “some crypto assets appear to be here to stay.”

The eighth chapter of the report, which focuses on digital assets, is primarily a rehash of things that people working in the field have known for years — how Bitcoin is mined, the risks of algorithmic stablecoins, the crypto sector’s role in ransomware, its volatility and its unsuitability as a medium of exchange, etc. But one major shortcoming is that it fails to recognize the technology’s future possibilities.

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All in all, U.S. regulators face a balancing act. The government has every right to crack down on bad actors, but it shouldn’t kill innovation in the process. The SEC can’t expect to regulate everything in the crypto space — not everything is a financial security.

For instance, if the agency declared Ether (ETH) a security — because the Ethereum network uses ETH in its staking consensus mechanism — then that would rightly be considered regulatory overreach.

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“In the aftermath of FTX, it’s no surprise that regulators are inclined to act,” Chris Perkins, president of crypto venture firm CoinFund, and a member of the CFTC’s Global Market’s Advisory Committee, told Cointelegraph. “And, they should be empowered to pursue enforcement actions to prevent other ‘FTXs.’ But, it’s important that we don’t throw the baby out with the bathwater.”

FAQs

When was Bitcoin created? ›

Launched in 2009, Bitcoin is the world's largest cryptocurrency by market capitalization. Unlike fiat currency, Bitcoin is created, distributed, traded, and stored using a decentralized ledger system known as a blockchain.

What do you mean by Bitcoin? ›

BTC definition: What is Bitcoin? Bitcoin is a form of digital currency that aims to eliminate the need for central authorities such as banks or governments. Instead, Bitcoin uses blockchain technology to support peer-to-peer transactions between users on a decentralized network.

What is the history of Bitcoin? ›

Bitcoin was the first cryptocurrency created and is now the most traded and well-known. It was first launched in January 2009 by a computer programmer or group of programmers under the pseudonym Satoshi Nakamoto, whose actual identity has never been verified.

Who owns the most Bitcoin in the world? ›

According to most common estimates, it is Satoshi Nakamoto, the anonymous creator of BTC, who has the largest Bitcoin holdings in the world.

Who is the real creator of Bitcoin? ›

Key Takeaways. Satoshi Nakamoto is the pseudonym used by the creator or creators of Bitcoin. The identity of Satoshi Nakamoto is not publicly known. One of the first major public investigations ended with Dorian Nakamoto being identified as Bitcoin's creator, but he continues to decline the claim.

Who owns Bitcoin? ›

Satoshi Nakamoto (born 5 April 1975) is the name used by the presumed pseudonymous person or persons who developed bitcoin, authored the bitcoin white paper, and created and deployed bitcoin's original reference implementation.

Can Bitcoin be used as real money? ›

For several years, U.S. banks have been discussing the possibility of considering bitcoin as a “legitimate asset class,” which means it would be recognized as real money. However, bitcoin and other cryptocurrencies are not currently considered real money by the federal reserve or U.S. banks.

Can you turn Bitcoin into cash? ›

You can use a crypto exchange like Coinbase, Binance, Gemini or Kraken to turn Bitcoin into cash. This may be an easy method if you already use a centralized exchange and your crypto lives in a custodial wallet. Choose the coin and amount you'd like to sell, agree to the rates and your cash will be available to you.

What was Bitcoin originally selling for? ›

In July 2010, bitcoin began trading at US$0.0008, climbing to US$0.08 by the end of the month.

How much is $1 Bitcoin in US dollars? ›

The conversion value for 1 BTC to 30268 USD. BeInCrypto is currently using the following exchange rate 30268. You can convert BTC to other currencies like BTC, BNB or ADA. We updated our exchange rates on 2023/04/16 04:18.

What came before Bitcoin? ›

The first cryptocurrency was eCash, created by David Chaum's company DigiCash in 1990. There were several attempts to create a viable and accepted cryptocurrency before Bitcoin. eCash, B-money, Bit Gold, and Hashcash were very influential in Bitcoin's creation.

What happens when all 21 million bitcoins are mined? ›

What Happens to Mining Fees When Bitcoin's Supply Limit Is Reached? Bitcoin mining fees will disappear when the Bitcoin supply reaches 21 million. After that, miners will likely earn income only from transaction processing fees rather than a combination of block rewards and transaction fees.

What wallet holds the most bitcoin? ›

A Binance wallet was the single richest address, with 248,597 BTC worth more than $6.8bn and representing almost 1.3% of the circulating BTC supply. The BitFinex wallet held 168,010, or about 1.02% of BTC's current circulating supply, while the third wealthiest, which held 127,351 bitcoin, was also linked to Binance. .

What government owns the most bitcoin? ›

Around 8% of all the Bitcoin in the world is owned by governments and companies. That's about 1.6 million BTC, which is worth roughly 45.8 billion dollars. Bulgaria is the country that holds the highest number of BTC, 213,519 Bitcoin, valued at around 6.27 billion dollars.

When was Bitcoin $1? ›

According to historical data at Investing.com, Bitcoin's price never broke above $0.40 per bitcoin in 2010 but did manage to hit that level in early 2011. Then in February, it crossed $1. Just a few months later, in May, it briefly exceeded $8 – a stunning 8-bagger in mere months!

What was the price of 1 Bitcoin in 2009? ›

What Price Did Bitcoin Start At? Bitcoin was originally worth next to nothing. The transaction that first gave Bitcoin monetary value was in October 2009, when Finnish computer science student Martti Malmi, known online as Sirius, sold 5,050 coins for $5.02, giving each Bitcoin a value of $0.0009 each.

How much was a Bitcoin worth in 2009? ›

During the early months of 2009, Bitcoin was valued at less than one cent per unit, and it wasn't until July of 2010 that Bitcoin was able to reach $0.08 per unit. Why was the 2009 price of Bitcoin so low?

How much did the first Bitcoin cost? ›

Price of 1 Bitcoin in 2009: $0

This paper introduced a peer-to-peer digital cash system based on a new form of distributed ledger technology called blockchain.

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