The cryptocurrency industry in the US is convinced that the country’s financial watchdogs are deliberately preventing it from flourishing, due to repeated regulatory failures. According to a report by the Intelligencer, both written and unwritten policies and rules are making it difficult or even impossible for crypto-related companies to operate in the US. The CEO of the Blockchain Association, Kristin Smith, told the newspaper that it felt like a “coordinated” effort, similar to “carpet-bombing.”
Despite the government’s denial that it is against cryptocurrency, recent actions by regulators, especially the Office of the Comptroller of the Currency (OCC), suggest otherwise. The OCC recently rejected the application of Protego Trust, which had received conditional approval in 2021. Protego wanted to offer crypto custody services to institutional clients and was not planning to engage with retail investors. The company had raised $80m and had secured conditional approval, giving it a valuation of $2bn.
However, the OCC rejected Protego’s application for a national trust charter on a previously unmentioned “technicality” after it had completed the requirements for full approval in February. Protego founder, Greg Gilman, said that it felt like there had been an “unannounced and unexplained policy change” that had derailed the company’s efforts. Despite being built to appeal to the regulatory landscape, Protego’s experience was similar to that of most crypto-related companies trying to secure approval in the US.
Crypto Industry Fears Resurgence of Operation Chokepoint
The crypto industry claims that regulators’ negative attitude towards it points to a resurgence of Operation Chokepoint, an Obama-era policy designed to stifle certain politically unfavored industries, such as gambling, tobacco, and porn. Under the policy, prudential financial regulators made a concerted effort to cut off these industries’ access to banking services on the basis of reputational risk that was often defined arbitrarily. The practice continued until Congress stepped in and created a rule to ensure it did not happen.
However, the Biden administration abolished the rule after taking office, leading to concerns that regulators are once again trying to “de-bank” unfavored industries, with crypto being the latest target. Congress members recently sent prudential regulators a letter highlighting these concerns and instructing them to release all communication with crypto companies to investigate whether the unfair practice is occurring again.
Despite recent hearings where industry experts and participants testified about the numerous hurdles and frustrations with the regulatory process, lawmakers have yet to take any action on the matter. Observers in political and law circles echo the sentiment that regulators are preventing the crypto industry from flourishing in the US. A former regulatory official told the Intelligencer that “it’s different from the original Choke Point, in that they are being pretty public about it – nobody’s guessing their views. Another difference is that it’s actually broader in scope.”