Title: Operation Choke Point Redux: Cryptocurrency Businesses Face Bias and Bank Runs
Subtitle: Government Actions Raise Concerns of Prejudice and Financial Instability in the Cryptocurrency Industry
In a concerted effort to combat fraud committed by merchants and money launderers, Operation Choke Point targeted financial institutions and payment processors, aiming to close their access to the banking system. However, this operation faced criticism for its broad application and alleged targeting of legal businesses. Despite claims that Operation Choke Point ended in 2017, recent events suggest that little has changed, with cryptocurrency-focused banks facing bias and experiencing bank runs. This article delves into the renewed concerns of prejudice against cryptocurrency businesses and the resulting instability in the industry.
Operation Choke Point: A Controversial Past:
Operation Choke Point, a government initiative, aimed to disrupt fraudulent activities by targeting financial institutions and payment processors. By limiting their access to the banking system, the operation sought to combat mass marketing fraud and money laundering. However, critics argue that this operation went beyond regulatory enforcement, resembling a purge of ideological foes rather than a legitimate action. Various business categories, including ammunition sales, drug paraphernalia, payday loans, and dating services, were affected. The broad application of financial exclusion prompted lawsuits and federal investigations into the Department of Justice (DOJ) and the Federal Deposit Insurance Corporation (FDIC).
Bank Runs and Bias Against Cryptocurrency Businesses:
Recent events have raised concerns about bias against cryptocurrency businesses, reminiscent of Operation Choke Point. The voluntary liquidation of Silvergate Bank, a cryptocurrency-focused institution, and the subsequent seizure of Silicon Valley Bank (SVB) and Signature Bank have sparked fears of prejudice and financial instability.
Silvergate Bank, which had been serving cryptocurrency clients since 2013, faced significant challenges as the cryptocurrency market declined. U.S. Senators Elizabeth Warren, Roger Marshall, and John Kennedy further exacerbated the situation by requesting details of Silvergate’s financial relationship with a collapsed cryptocurrency exchange. This led to the bank’s stock price plummeting and eventually its voluntary liquidation.
Similarly, SVB, a prominent bank in the cryptocurrency industry, faced a run on its funds as economic conditions worsened. Customers, strained by these conditions, withdrew billions of dollars, leading to the bank’s seizure by the California Department of Financial Protection and Innovation.
Signature Bank, known for its focus on cryptocurrency businesses, also experienced a significant bank run. Its closure by the New York State Department of Financial Services marked the third-largest bank failure in U.S. history. Critics argue that these seizures and closures demonstrate a bias against cryptocurrency businesses and a larger effort to stymie their operations.
Government Actions and Prejudice:
Even before the bank runs, there were signs of bias against cryptocurrency businesses from the Biden administration. A joint statement from the Federal Reserve, FDIC, and Office of the Comptroller of the Currency (OCC) highlighted the risks associated with crypto-assets, potentially dissuading financial institutions from engaging with them. The White House’s roadmap to mitigate cryptocurrency risks expressed concerns about granting cryptocurrencies more access to mainstream financial products, emphasizing the need to protect investors and prevent financial instability.
Further actions by the Federal Reserve, including a rule prohibiting state member banks from holding crypto assets and issuing tokens on decentralized networks, reinforced the government’s stance against cryptocurrencies. Additionally, the proposed Digital Asset Mining Energy (DAME) excise tax aimed to financially compensate the government for the environmental and economic costs of cryptocurrency mining operations.
Critics argue that these actions and policies demonstrate a clear bias against the cryptocurrency industry and hinder its growth. The closures and seizures of cryptocurrency-focused banks only reinforce these concerns.
The recent bank runs and bias against cryptocurrency businesses have reignited concerns about prejudice and financial instability in the industry. Despite claims that Operation Choke Point ended, the events of the past years suggest that little has changed. The actions and policies of the government, particularly the Biden administration, raise questions about their stance on cryptocurrencies and their impact on the financial system. As the industry continues to grow, it is crucial to address these concerns and promote fair treatment and stability for cryptocurrency businesses.
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