Coindesk Editorial: The U.S. does seem to be trying to kill cryptocurrencies

While walking my dog, I often run into a septuagenarian named “Harry” (not his real name), a former New York City detective who feeds a colony of stray cats on a nearby golf course every morning. We chatted a few times, and his worldview includes belief in the far-right QAnon conspiracy theory and that another American civil war is imminent, and he says he’s always waiting for some kind of “signal.”

Sometimes we talk about cryptocurrencies. A few days ago, I told him that the industry has been having a hard time due to the banking crisis and rapidly increasing government pressure.

He immediately responded with a question: “Do you really think central banks and governments will allow competitors to fiat currencies to exist?”

It gives me chills. Harry spouts off conspiracy theories that I find increasingly difficult to refute.

In the space of just a few weeks, it has become increasingly easy to believe — rightly or wrongly — that U.S. regulators are seeking to restrict, if not outright exclude, all crypto projects within their borders following the collapse of crypto exchange FTX .

This conspiracy theory does not require much skepticism, and even senior observers, including former regulators, have described this as a coordinated attack. The current administration’s hostility to cryptocurrencies is evident in official statements, and then there are enforcement actions. After years of ignoring industry calls for guidance and regulation, the U.S. government appears to be retaliating against all cryptocurrency owners.

The U.S. Securities and Exchange Commission ( SEC ) has taken a series of enforcement actions against crypto companies including Kraken and Coinbase , and just days ago, the Commodity Futures Trading Commission ( CFTC ) sued Binance . The Biden administration also released the "President's Economic Report" last week, which stated that cryptocurrency is not a useful technology, while focusing on a series of criminal frauds that have occurred in recent years using crypto technology.

There are two reasons why I don't believe in coordinated attacks. One is rooted in idealism, and the other is my cynicism.

First, this is America, the land of opportunity and freedom. A deliberate attack on the economic freedom that crypto represents would go against the values ​​of this country. Second, America — a place with a crumbling infrastructure where our leadership can’t even muster the energy to fix our bridges and railroads in a timely manner. It’s frustrating that they may be more interested in destroying the financial infrastructure of the future than maintaining the physical infrastructure of the present. The fact that the CFTC claimed in its lawsuit against Binance that Ethereum is a commodity, while both the SEC and the New York Attorney General believe it is a security, demonstrates the lack of regulatory consensus at the federal level in the United States.

But whether this is a crackdown on cryptocurrencies may not matter. Some people believe it’s true, and it’s not just my friend Harry. The idea is popular right now: the US is taking it for the crypto industry. As a result, some companies are considering moving overseas, while others are worried they’ll lose or be unable to get a bank account. And it’s not just industry insiders who believe this. Bankers, for example, are turning down invitations to speak at crypto conferences because they’re worried about being targeted by regulators.

Without significant changes from the Biden administration, opposition to cryptocurrencies in the U.S. could quickly become too entrenched to eradicate. The fact that most of the U.S. government’s actions have been punitive rather than constructive is a significant factor.

Regulators and the White House need to make it clear that crypto has a future in the United States, and there is no better way to do that than to provide the industry with the regulatory clarity it craves. The blueprint for a more appropriate framework is already laid out in proposed legislation such as the Senate Lummis-Gillibrand Responsible Financial Innovation Act. We and most of the crypto community would welcome such clarity, but regulators and many other lawmakers seem unwilling to provide it.

Existential Threat

CoinDesk almost never takes an official position on issues. As noted in the past, we generally just relay the facts, rather than take an official view on any given subject. But in this case, our position should be made clear.

Coindesk editorial leadership believes that the threats facing crypto as a result of recent U.S. actions (whether those actions were intentional or not) are real and that we need to take a stand on behalf of technologies and industries that have the potential to be advantageous and economically empowering.

We believe that the regulators’ actions will not succeed in their stated goal of protecting Americans from fraud and scams. Early examples suggest that it is likely to push technological innovation beyond U.S. borders. Among other effects, this will make it impossible for all but the most knowledgeable participants to distinguish fraudulent activity from legitimate innovation efforts.

We are alarmed by indications that the crackdown exceeds the authority of regulators under existing law and violates the spirit of freedom and innovation that underpins the United States and the crypto industry.

It looks like regulators are trying to block crypto companies from accessing traditional banking services. Former Congressman Barney Frank, an architect of tighter banking regulations after the 2008 financial crisis, said that Signature Bank, where he served on the board of directors, was forced into liquidation by the New York Department of Financial Services ( NYDFS ) because “regulators wanted to send a very strong anti-crypto message,” an allegation denied by the NYDFS.

But the claim appears to be backed up by recent moves by banking authorities. On March 16, Reuters reported that the U.S. Federal Deposit Insurance Corporation (FDIC) required potential buyers of Signature Bank to abandon the bank’s crypto clients, essentially denying them further banking services. The FDIC denied this — but cryptocurrency customers were indeed excluded from the acquisition when the deal was completed.

Some have dubbed the sub-rosa actions “Operation Choke Point 2.0” — an apparent holdover from the Obama era, which aimed to kick legal but politically unpopular businesses, including gun manufacturers and small cash lenders, out of the banking system. The measures appear not only to circumvent due process but also to repeat violations of law from previous administrations that have already been harshly punished by lawmakers and the legal system.

It is worth noting that the current head of the FDIC, Martin Greunberg, was the architect of the original Operation Choke Point .

Those questions culminated in a wave of lawsuits and hearings that, by and large, concluded that the government had abused its power. In response to the various lawsuits, the FDIC pledged internal reforms to prevent overregulation of legitimate businesses, including ending its unwritten advice to banks about customer choices, a promise whose sincerity now seems questionable.

CoinDesk is working to uncover the true story behind recent events and reveal whether there really is a coordinated attack by the U.S. to stifle the crypto industry. But the abuse of government power is enough to raise alarms, even before things become clear.

"Kill one thousand enemies and lose eight hundred of your own"

This covert anti-crypto agenda must be distinguished from legal action taken against crypto scams that victimize users. We are well aware that crypto, like many cutting-edge technologies before it, is extremely attractive to fraudsters. We applaud the prosecution and potential prison sentences of alleged criminals, including Do Kwon and Sam Bankman-Fried . We actively work to stop fraud: CoinDesk’s reporting exposed FTX’s alleged massive fraud, and we warned investors away from crypto lenders Celsius Network and Terra before they collapsed.

But denying crypto tool developers and crypto service creators the ability to manage their USD funds in U.S. banks is not an anti-fraud measure. It’s a daisy cutter that could result in “killing one thousand enemies and hurting eight hundred of your own.” Similarly, failing to establish a clear framework for regulated digital asset issuance will ultimately make it more difficult for consumers and law enforcement to stop fraud because it eliminates any path to legitimacy for even the most compliant digital asset-based projects.

This apparent effort to stifle crypto has also had a ripple effect. As mentioned earlier, bank officials are noticeably less willing to speak publicly about cryptocurrencies or participate in public panels on the subject because they believe they will somehow run afoul of regulators. As a result, the debate about the future of the industry risks becoming an echo chamber of pro-cryptocurrency voices rather than a melting pot where truth and true innovation can be created.

There’s also the risk of crypto becoming politicized. The digital asset community has often shunned party politics, preferring to uphold principles of greater freedom and individual autonomy. Indeed, constructive bipartisan crypto legislation proposals have largely become the norm — most notably the omnibus bill sponsored by Senators Cynthia Lummis and Kirsten Gillibrand . But now, the perception that the government is against cryptocurrencies is threatening to derail that open collaboration. How people view cryptocurrencies could soon depend on political affiliation. If that happens, no one wins.

Cryptocurrencies do have real-world uses and benefits, including as a financial alternative for people facing repression and violence around the world. In just one example, cryptocurrency enabled $100 million in aid to reach Ukraine quickly following the Russian invasion—faster than it could have been transferred through traditional government channels.

More broadly, cryptocurrencies have become a nexus for propaganda about tools that can resist the dangerous concentration of digital power in the hands of corporations whose data hoarding makes surveillance and censorship their main trading points. The rise of surveillance monopoly capital is a topic of obvious concern for many lawmakers, whose powers bank regulators currently appear to be usurping.

While speculation drives much of the market activity for digital assets (much like the tech stock market), their prices are also driven by actual demand from current users. Billions of dollars in value flow through the Bitcoin network around the world every day.

Violating American values

Bitcoin and many other cryptocurrencies have been able to function unscathed even through a sweeping, indiscriminate regulatory crackdown. That’s the point: These systems are designed to empower individuals to control their own destinies in the digital age, separate from government and corporate structures.

In this regard, cryptocurrencies align with fundamental principles that are American values. The rights to freedom of religion, speech, and other rights enshrined in the U.S. Constitution are a blueprint for spreading freedom throughout the world, and they have helped increase human prosperity, happiness, and wealth for millions of people.

These protections may seem normal to many Americans now, but they were once viewed as dangerous and destabilizing by the old powers. Even on American soil today, authoritarians continue to repeat the same mistakes, seeking the illusion of security through censorship and restriction.

Given this reality, there is clearly still a long way to go to make personal financial sovereignty a protection that is taken for granted in a democratic society, just as freedom of speech and religion are today. I hope that my friends who believe in conspiracy theories are ultimately proven wrong and that the Biden administration is not trying to kill cryptocurrencies. Assuming that is the case, the White House needs to clearly demonstrate its positive intentions. For example, it should support bipartisan efforts to pass legislation authorizing the SEC to develop clear guidelines for securities laws related to digital assets.

Go ahead, prove Harry wrong.