The year 2023 began with a joint statement from U.S. banking regulators – the OCC, the Federal Reserve Board, and the FDIC, emphasizing the risks that the crypto sector poses to the banking industry. Despite this cautious stance, Bitcoin experienced a 40% price rally in January, with shares of crypto-friendly banks like Silvergate, Silicon Valley Bank, and Signature trading as usual. However, the tide soon turned with the Federal Reserve Board rejecting Custodia Bank’s application for membership and releasing a statement expressing their intent to reduce banks’ exposure to cryptocurrencies.
Rumors emerged in February that the Biden Administration was planning a widespread crackdown on the crypto market, with crypto-friendly banks expected to be the first target of regulators. This led to what venture capitalist Nic Carter called “Operation Choke Point 2.0,” a coordinated effort by the SEC, Treasury Department, Federal Reserve Board, and other regulators to cripple the crypto industry by cutting its ties with the banking sector. Coinbase CEO Brian Armstrong even claimed that the SEC was looking to ban crypto staking.
Subsequently, the SEC initiated a series of actions against the crypto industry, targeting Kraken’s crypto staking services and taking action against Binance and BUSD, as well as other exchanges like Coinbase and Bittrex. In March, the crackdown caused the surprising closure of Silvergate, Silicon Valley Bank, and Signature within a week. Although regulators blamed cryptocurrencies for the banking crisis, other factors such as the Federal Reserve’s rate hikes and mismanagement played a role. Prominent figures like Brian Armstrong, CZ, Elon Musk, Nic Carter, Arthur Hayes, and Cathie Wood criticized regulators for scapegoating cryptocurrencies.
The U.S. House Financial Services Committee is now investigating potential coordinated efforts by regulators to de-bank the crypto market. When confronted by House Republicans regarding the SEC’s treatment of digital assets, SEC Chair Gary Gensler blamed crypto for the collapse of banks.
This year is turning out to be one of the worst in terms of asset losses for banks, with three out of the five largest banks collapsing. The looming debt crisis and the Federal Reserve’s plan to raise interest rates by another 25 bps on May 3 could precipitate further bank collapses. With the non-crypto First Republic Bank recently collapsing and being absorbed by JPMorgan, one must wonder who Gensler will pin the blame on this time. Regulators need to acknowledge that their policies and decisions are causing the banking crisis, and not point fingers at the crypto industry.
Source: Coingape
