The Breakdown - Chokepoint Across the Pond: Chase UK Says No Crypto Transactions

Episode Date: September 27, 2023

Chase UK has taken the extreme step of refusing to process crypto related transactions, they say as a measure to fight fraud. NLW also looks at the letter sent to SEC Chair Gary Gensler by a bipartisan group from the House Financial Services Committee pushing him to approve a Bitcoin spot ETF with haste. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

We've got election season coming up, remember, and if the Dems win and Gensler comes back to the same office, he doesn't care because he has the wind at his sales, and if he loses, he also doesn't care because he's out of the job. I would expect, in other words, for every court decision that goes against the SEC to be answered not with a rational shift in policy and approach, but instead two blazing middle fingers from a bureaucrat potentially on his way out the door. Welcome back to the breakdown with me, NLW. It's a daily podcast on Macro, Bitcoin, and the Big Picture Power Shifts remaking our world. What's going on, guys? It is Wednesday, September 27th, and today we are talking about this

crazy, strange Chase U.K. letter banning people from accessing crypto from their bank accounts. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link of the show notes or go to bit.ll.L.Y. Well, friends, I have to start the show by eating some crow. In the morning yesterday, a letter started going around that people were, of course, breathlessly posting as fact long before it was confirmed, and it just did not read right to me. So much so that as more and more people started tweeting about it, I actually posted it saying, I think this letter is fake. Let me just read the whole

thing to you. It's not long, so you have a sense of why I was skeptical. The header says Chase, and it says our policy around crypto is changing. Here's what it means for you. Hi, to help keep your money safe from fraud and scams, we're changing the type of payments you can make from Chase. From 16th of October, 2023, if we think you're making a payment related to crypto assets, we'll decline it.

If you'd still like to invest in crypto assets, you can try using a different bank or provider instead, but please be cautious, as you may not be able to get the money back if the payment ends up being related to fraud or a scam. Please head to our website for more info about how to protect your money. money. We've made this decision because fraudsters are increasingly using crypto assets to steal large sums of money from people. Declining these payments is one of the ways we're help keeping you and your

money safe. All the best, the Chase team. So a couple things that really stood out to me. One was the tone in general non-professionalism of the letter. The use of the word fraudsters seemed very, very strange from an official corporate communication. This is obviously quite a colloquialism, and so the idea that it was being used as a formal explanation for why a bank would be denying an entire category of payments options to its users seemed a little crazy. Continuing that questionable tone was the ending, all the best. That's how I sign off my emails. That's not how a major bank signs off its emails. Now, of course, there was also the general grossness of the policy if it were to become real, but that really wasn't even what I was thinking about initially. And yet, shockingly, it was confirmed

to be real. I was wrong, and somehow, a bank associated with Chase had sent out that letter. Now, later in the day, it became clear that the policy was for Chase UK, rather than the broader U.S. or international banks. But even if it was only a domestic UK policy, the aggressive move still rubbed many people, perhaps most people, I would say, in the industry the wrong way. Coinbase CEO Brian Armstrong tweeted, totally inappropriate behavior from Chase UK. Rishi Sunak, Andrew Griffith, it appears Chase UK does not respect your policy goals. Thoughts? UK crypto holders should close their Chase accounts if this is how they're going to be treated. Now, Andrew Griffith is the UK Economic Secretary to the Treasury and Minister for the City of London,

and Rishi Sunak is, of course, the prime minister who was formerly the Chancellor of the Exchequer, who said while he was at that post that he wanted to make the UK a crypto hub. Light Spark CEO and former head of the Libra Project at Meta, David Marcus, added, Wow. Now, UK commenters were surprisingly quiet, and that's perhaps because Chase is a relatively minor player in the UK, despite being a major global banking brand. Chase has, in fact, only had a presence in the UK for around two years and has, less than 2 million customers. They're also limited to offering online services so are, in practice,

a lot closer to a fintech platform than a traditional bank. Just by way of comparison, relative to the population, Chase U.K. has a similar footprint to Huntington National Bank in the U.S. Now, if Huntington banned crypto transactions in the U.S., you can bet we would be chattering about it, but it wouldn't ultimately be seen as that big of a deal, which perhaps explains the lack of outrage from UK crypto investors. That said, of course, Chase isn't Huntington. Regardless of whether they have a large customer base, Chase U.K. is still a subsidiary of the largest Western bank in the world. And because of that, the important part of the policy change is unpacking whether this is an idiosyncratic decision of an insignificant bank, or speaks

to a broader policy outlook at J.P. Morgan Chase. Now, the reason given in the letter for this policy change was, of course, to prevent fraud. When fielding questions from media throughout the day, a Chase spokesperson doubled down, saying, we're committed to helping keep our customers money safe and secure. We've seen an increase in the number of crypto scams targeting UK consumers, so we have taken the decision to prevent the purchase of crypto assets on a Chase debit card, or by transferring money to a crypto site from a Chase account. Austin Campbell rightly points out, quote, there should be more transparency in the banking system so we can assess if the claims of elevated levels of fraud, and the inability of banks to have effective controls to prevent

fraud, implicitly admitted here, are real or just anti-competitive. Bitcoin Attorney Crypto Hat responded, it's anti-competitive with the veneer of fraud. Eminently reasonable as he always is, responded, being fair, if there's truly elevated fraud and you can't have effective controls, that's a reason to dial back. However, they should be publicly sharing information in building consortiums with law enforcement and other financial institutions to fight said fraud, not turtling. Now, of course, even if this policy change only affects a couple a million Brits, it still matters in the broader fight to ensure crypto investors and firms have fair access to banking services. This has, of course, been one of the biggest themes throughout this year.

The pushback from the U.S. crypto community matters in order to ensure that banks can see that these sort of blanket bans are simply not an acceptable way to deal with issues around fraudulent transactions. And for a place that said it wants to be a crypto hub, the UK in particular has had a string of larger banks rejecting crypto payments over the past year. In February, a group of CEOs from major UK banks appeared at a parliamentary hearing. Multiple CEOs said their banks were blocking crypto payments, and although they listed fraud as a major concern, they also mentioned the volatility of crypto investments. The problem became so large that the UK's Financial Conduct Authority published a report on debanking

earlier this month. The report stated that the regulator had facilitated conversations between banks and crypto firms to ensure that they would be able to open and maintain accounts. Still, some large UK banks, including Nat West, are currently refusing to service crypto firms across the board. Now, one alternative opinion came from Francis Pullio, the founder at Bolt Bitcoin. He said, Controversial opinion. Chase and JPM banning payments to quote-unquote crypto is justified from their perspective because of the unfathomable amount of crypto scams targeting their clients. This is 100% the fault of the quote-unquote crypto community culture of scams. It's so bad out there that Bull Bitcoin staff needs to interview users over a certain age threshold

via video chat and essentially interrogate them to make sure they aren't being sucked into a yield, cloud mining, or other crypto ponzi's. Still, as you might imagine, even among bitcoiners who share Francis's disgust with crypto scams, This wasn't the primary opinion out there. Indeed, by and large, the sentiment was, and this is the end then they fight you phase. So what to do? Well, some like DGen Spartan, basically say vote with your feet. They write, as far as I know, same problem in other crypto hubs like Dubai, Hong Kong, and Singapore. Government policy is one thing, but getting banks to open accounts for crypto individuals and companies is another. Just vote with your money.

My crypto-friendly banks get my highest share of account. The others? Meh. Now, another response is the entrepreneurial opportunity. the CEO of Lumida Wealth said, we have a number of clients that have been canceled by J.P. Morgan. It's not just retail banking, it's also private wealth management. Although indeed later, he tweeted, I'd like to thank JPMorgan for denying service to digital asset clientele. It's been great for business. If you're a JPMorgan private wealth client, we at Lumido would be happy to help you find a new home. I don't know, man. All in all, it feels a little choke point to me. Remember the whole point of Operation Chokepoint and why it's problematic is that it creates a

scenario where government and regulators don't have to ban anything, because they just make it so economically untenable and politically risky for big service providers like banks to work with crypto companies, that a de facto ban is the natural response. And speaking of de facto bans, let's turn now to the intransigent SEC. A bipartisan group of House Financial Service Committee members have written to SEC Chair Gary Gensler calling for the regulator to immediately approve spot Bitcoin ETF applications. Mike Flood, Tom Emmer, Willie Nickel, and Ritchie Torres penned the letter which asserted that, quote, the SEC's current posture is untenable moving forward. Following the Court of Appeals decision, there is no reason to continue to deny

such applications under inconsistent and discriminatory standards. End quote. Now, of course, last month, the Court of Appeals rejected the SEC's reasoning for refusing to allow the Grayscale Bitcoin Trust to be converted to an ETF. Since then, the regulator has been dragging its feet on the topic. The SEC has still made no decision on whether they will appeal the Grayscale order. In the interim, they have also given no indication that they are in the process of reconsidering their previous decision. There are currently 10 other spot Bitcoin ETFs lining up for approval. The representative's letter argues that these ETFs are indistinguishable from the future's

ETFs which have already been approved, which is essentially the same conclusion drawn by the court in the gray scale order. The court found that the SEC had been, quote, arbitrary and capricious in distinguishing between the two type of Bitcoin ETFs. The letter noted the court's statement that, quote, in the absence of a coherent explanation, this unlike regulatory treatment of like products is unlawful. The representatives put forward that, quote, Congress has a duty to ensure the SEC approves investment products that meet the requirements

set out by Congress. We urge you to approve the listing of spot Bitcoin ETFs immediately. So one question many might ask is whether this actually moves the needle. Ron Hammond, the Director of Government Relations at the Blockchain Association, took on that question directly, saying, it depends on a variety of factors. If it comes from a senior set of members, it carries more weight, like Representative Emmer, bipartisan one show a united front and signals to Gensler that some of his own party disagree with his approach. But we haven't seen many SEC responses, though.

Cryptos Batman tweeted, the pressure on SEC and Gary Gensler increases, Bitcoin Spot ETF getting closer and closer. But alas, there actually wasn't all that much commentary around this part because it was immediately overshadowed by the next event. That was, of course, that yesterday afternoon, the SEC extended their timeline to make a decision about spot Bitcoin ETF applications from GlobalX and ARC-slash-21 shares. Notably, the move was well ahead of the deadline for extension for both products. What's weird about this is that previously the SEC has always waited until the last moment to make a call on delaying ETF applications.

The deadline for an extension to the Global X decision was next Saturday, and the SEC didn't need to make their call on the ARC-21 shares application until November 11th, making the extension extremely premature in that case. The SEC won't need to make a final decision on whether, to accept or reject any Bitcoin ETFs until January of next year when the clock runs out on the arc slash 21 shares application. The next deadline for the bulk of the Bitcoin ETF applications is around October 16th. The Tuesday filing stated that the SEC, quote, finds it appropriate to designate a longer period within which to take action to give the regulator, quote, sufficient time to consider its decisions. Now speculation immediately went into asking what was

behind the strange decision. Bloomberg ETF analyst James Safart tweeted, this may put the hammer down for any hopes of an ETF approval this year. If they went on ARC and 21 shares already, we may see delays on all the other filings today too. BlackRock, Bitwise, Van Eck, Invesco, Wisdom Tree, Fidelity, and Valkyrie are all due in mid-October. I wonder if this House Financial Services Committee letter had anything to do with the move. DUTA dot dot.

Safe Arc continues. In reality, my base case is that we will get the delays on the other filings tomorrow or sometime this week, and the SEC is simply getting ahead of a likely federal government shutdown. I have no idea what this means for the grayscale GBT situation, SEC has to petition for an in-bank hearing by October 13th. Now, others made the same connection that Safart did in terms of this letter and this policy. Adam Cochran tweets,

Gensler got a demanding letter from Congress and then 30 minutes later hammers out in early denial. Dude is off the rails and thinks he is above both the courts and Congress. He should be recalled. Still, others were surprised were surprised. Multiple-time breakdown guest, Hyrone Ross, tweeted, I've had multiple convos with SEC in the last month or so. Crazy to me, people still think this is imminent. To that, James Safarth responded, I mean, if they deny by 1-1024 deadline, they will end up back in court,

and without knowing full details yet, they'll likely lose again, in my opinion. Tyrone responded to that, I think G-Double is willing to risk it going back to the courts. So what we have here is that the innocent explanation is that the SEC is attempting to get these extensions published before a looming government shutdown. A lack of progress in passing appropriations measures over the past few days has meant a shutdown is all but certain to begin on Sunday. In a shutdown scenario, the SEC will continue to operate on a cessation. skeleton crew using leftover funds from last year's budget. Now, the less generous explanation is that this

is yet another political stunt from the Gensler SEC. The agency has become notorious for making tough-sounding headlines before pivotal congressional hearings, and wouldn't you know it, Gensler spent much of today testifying in an oversight hearing before the House Financial Services Committee. We will, of course, dig into all of what happened there on tomorrow's show. But look, here's my base case. I think anyone thinking that the SEC is just going to flip its lid and turn around, and start approving ETFs because of this court ruling is absolutely off their rocker. They may be forced at some point in the future to actually do this approving that they desperately don't want to do, but I think they are going to drag this thing as long as humanly possible.

The dislike of this industry is far beyond the normal course of action at this point. It is visceral. Gensler doesn't have to have these things resolved. He doesn't even have to win for it to cause huge problems for the industry. So if you take him as a political actor who has a vendetta against this industry for whatever reason, which is a whole different conversation, why not delay it as long as humanly possible? We've got election season coming up, remember? And if the Dems win and Gensler comes back to the same office, he doesn't care because he has the

wind at his sales. And if he loses, he also doesn't care because he's out of the job. I would expect, in other words, for every court decision that goes against the SEC, to be answered not with a rational shift in policy and approach, but instead to, two blazing middle fingers from a bureaucrat potentially on his way out the door. Till next time, guys, be safe, take care of each other. Peace.