A group of Republican senators led by Bill Haggerty of Tennessee wrote to banking regulators on March 9 backing that interpretation. The statement issued by the regulator “caused the bank to reassess its decision to provide banking services to the crypto industry,” the letter said. “This coordinated behavior appears disturbingly reminiscent of Operation Choke Point.”
“Operation Choke Point 2.0 is very real,” said Caitlin Long, chief executive of rejected bank Custodia. “Many banks have pulled back on their cryptocurrency activities … and there are many [crypto] Companies from small to large are looking for bank accounts. “
Since January, Custodia has been inundated with inquiries from cryptocurrency companies looking for banking partners, but in the absence of federal regulation, it can only offer a limited selection of services in U.S. dollars, Long said. Custodia is suing the Fed for denying its membership application.
Others are less convinced of the bottleneck theory. Economist Frances Copolla, who has worked in risk management at HSBC and RBS, said she did not believe there was a “coordinated attack on cryptocurrencies,” but that the failures of Silvergate and Signature reflected the vulnerability of their operating models. Caleb Franzen, a corporate banking analyst at research firm Cubic Analytics, said discussions of shady tactics among regulators were “pure speculation.”
But whether by accident or design, cryptocurrencies are facing a banking crisis in the United States.
The closure of Silvergate and Signature has crypto businesses desperately looking for new banking partners. Circle Internet Financial’s USDC stablecoin is temporarily out of its peg to the U.S. dollar due to exposure to Silvergate and SVB, which over the weekend arranged to expand its existing relationship with BNY Mellon. But not everyone is keeping dry at home; crypto investment firms MaiCapital and Digital Asset Capital Management have already scoured overseas for new banking partners, while trading platform LedgerX was forced to find a new bank for a second time after initially switching from Silvergate to Signature. None of the companies responded to requests for comment.
By virtue of their value to banks, larger cryptocurrency businesses may be able to keep their existing U.S. accounts, meaning U.S. residents can still use cryptocurrency exchanges, Carter said. But smaller companies are “scrambling to get ahead,” he said. The result is likely to be that some businesses will relocate to countries with more favorable regulatory regimes; some will struggle to raise venture capital, depending on access to banking; and others won’t get started in the first place, Carter said.
With the collapse of Silvergate and Signature, two banks that offer real-time payments anytime and anywhere, the 24/7 crypto industry will have to get used to operating at a different pace. For traders, this means not being able to exit bets outside normal banking hours, which can create additional volatility.
Swan Bitcoin’s Klippsten dismisses the idea of U.S. regulators launching a coordinated attack on the crypto industry driven by “manipulators behind the scenes.” He was also more upbeat about the prospects for Silvergate and Signature “orphaned” firms looking for new banking partners, saying “banks are usually happy to take your money.”
Klippsten also expressed sympathy for regulators’ ambitions to prevent fraud in the crypto space. But he said it is frustrating that legitimate cryptocurrency companies will suffer collateral damage.
“Because crypto is so shady and some businesses are so poorly run, the whole category is toxic — it’s a bunch of shit on average,” he said. “As a result, it is difficult to ask banks with hundreds of thousands of accounts to distinguish good crypto businesses run by mature adults, [and bad ones]. We’re stuck with the same brush. “
