The Breakdown - The US Government Attack on Crypto Certainly Seems Coordinated

Episode Date: April 2, 2023

On this edition of Long Reads Sunday, NLW reads “Editorial: It Sure Looks Like the U.S. Is Trying to Kill Crypto” by Kevin Reynolds  Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Join the discussion: https://discord.gg/VrKRrfKCz8   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   “The Breakdown” is written, produced and narrated by Nathaniel Whittemore aka NLW, with editing by Michele Musso and research by Scott Hill. Jared Schwartz is our executive producer and our theme music is “Countdown” by Neon Beach. Music behind our sponsor today is “Foothill Blvd” by Sam Barsh. Image credit: by CoinDesk.  Join the discussion at discord.gg/VrKRrfKCz8.  

In the wake of one of the most tumultuous years in crypto history, the conversations happening at Consensus 2020 has never been more timely and important. This April, CoinDess is bringing together all sides of the crypto, blockchain, and Web3 community to find solutions to crypto's thornyest challenges and finally deliver on the technology's transformative potential. Join developers, investors, founders, brands, policymakers, and more in Austin, Texas, April 26th to 28th for Consensus 2020. Listeners of the breakdown can take 15% off registration with Code Breakdown. Register now at consensus.coindex.com and join CoinDesk at Consensus 2023. 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. The breakdown is produced and distributed by CoinDes. What's going on, guys? It is Sunday, April 2nd, and that means it's time for Long Reads Sunday. Before we get into that, however, if you are enjoying the breakdown, 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.ly slash breakdown pod. All right, friends, happy Sunday. You know, I think when I think about it, when we look back at what this week was about, there are a number of possibilities. It could be the

week that Binance was sued by the CFTC. It might be the week that Doe Kwan was arrested. But I think one of the contenders, certainly, is that this was the week that Elizabeth Warren, a U.S. Senator openly declared war on crypto. What do I mean by that? Well, Senator Warren took an article headline from February, which read Elizabeth Warren is building an anti-crypto army and put it front and center in her fundraising materials for her re-election campaign. The phrase they used was literally anti-crypto army. If that doesn't seem like, a declaration of war, I just don't know what does. Which brings us to this week's Longreed Sunday piece. It's by the CoinDesk editorial team, specifically Kevin Reynolds, and is called, it sure

looks like the U.S. is trying to kill crypto. The subheading is the federal government's recent actions against crypto are, rightly or wrongly, widely perceived as a coordinated attempt to maim digital assets. This risks sending a vital industry overseas without actually protecting investors. Now, as you'll see, what makes this a little bit different from other coin desk pieces is that this is not just the opinion of one author, but instead is presented as the editorial position of the coin desk staff itself. As I mentioned, it's written by Kevin Reynolds' CoinDesk's editor-in-chief. When walking my dogs, I often run into a septuagenarian named Harry, not his real name, a former New York City detective who each morning feeds a colony of stray

cats at a nearby golf course. We've bonded over animals, but that's where the touch Feeley part of Harry starts and ends. His worldview includes belief in several Q&on conspiracy theories, and that another American civil war is around the corner. He's been waiting for the quote-unquote signal. Sometimes I engage with Harry, other times I just listen. Sometimes we talk about cryptocurrency while he says hello to the pups. A couple of days ago, I told him it's been a rough stretch for the sector, with a banking crisis and government pressure ramping up fast. He responded quickly. Did you really think that central banks and governments would allow a competitor to fiat money to exist, that stopped me cold. Here he was spouting a conspiracy theory that I'd been

finding increasingly hard to argue against. Over the course of just a few weeks, it is become increasingly easy to believe, rightly or wrongly, that in its understandable desire to do something in the wake of the collapse of cryptocurrency exchange FTX, the regulatory and administrative state of the United States of America is trying to kneecap, if not out and out, neuter all of crypto as a technological project within its borders. As conspiracies go, this one doesn't need much suspension of disbelief. Even well-placed observers, including former regulators, have characterized this as a coordinated attack. Heck, the current administration's animus against cryptocurrency is clear in official statements. And then there's healthy actions. After ignoring industry pleas

for guidance and regulation for years, the U.S. government seems to be going after all parts of crypto with a vengeance. This assault has included a series of enforcement actions by the Securities and Exchange Commission against regulated U.S. crypto entities including Cracken and Coinbase, while just this week, the Commodity Futures Trading Commission sued Binance. The Biden administration last week also released its economic report of the president, which made the case that cryptocurrency is not a useful technology, while focusing on a series of crypto-inspired criminal frauds that unfolded in recent years. My reasons for disbelieving that there is coordinated ill-intent are twofold, one rooted in idealism and the other cynicism. First, this is the U.S., the land of

opportunity and freedom. A deliberate attack against the economic freedom that crypto represents would run against this country's values. Second, this is the U.S., the land of crumbling infrastructure. Our leadership can't even muster the coordination necessary to repair the country's bridges and railways. It is too depressing to imagine they might be more aligned on destroying the financial infrastructure of the future than maintaining the physical infrastructure of the present. Supporting the lack of coordination side of the argument is how the CFTC, in its suit against finance, claims the cryptocurrency Ether is a commodity, while the SEC and the New York Attorney General both argue it's a security. But whether this is a coordinated effort against crypto or not

may be irrelevant. Some people are convinced it's real and not just my friend Harry. The idea is rampant now. The U.S. has it in for crypto. So some firms are looking at moving overseas, while others are worried they will lose or be unable to obtain bank accounts. And it's not just industry folks who believe this. Bankers, for instance, are declining invitations to speak at crypto gatherings, fearful of painting targets on their institution's backs. Without a significant change of course by the Biden administration, the view that the U.S. is anti-crypto will soon become too entrenched to uproot. The fact that most of the U.S. government's actions have been punitive rather than constructive is a huge factor. Regulators in the White House need to make it clear that crypto has a future

on U.S. shores. And there's no better way to do it than by giving the digital asset industry the clarity it has been begging for. Blueprints for a more appropriate framework have been laid out in proposed legislation such as the Lomas-Gillibrand Responsible Financial Innovation Act in the Senate. We, along with much of the crypto world, would welcome such clarity, but regulators and many other lawmakers seem reluctant to provide it. Existential threats. CoinDesk almost never adopts a formal position on issues. As noted in the past, we typically leave the task of presenting the organization's common perspective to the breadth and balance of the newsroom's reporting, rather than taking an official point of view on any given topic. That we are doing so here reflects our view that, in this case,

our position should be made clear. The editorial leadership believes the threats facing crypto due to recent U.S. actions, regardless of whether they're deliberate, are existential enough to merit taking a stand on behalf of a technology and industry that are a potential good and a force for economic empowerment. We do not believe these attacks will succeed in their stated goal of protecting Americans from fraud and scams. Early reactions suggest it is highly likely to push technological innovation outside of U.S. borders. This would, among other impacts, make entirely fraudulent activities indistinguishable from legitimate efforts at innovation for all but the most savvy insiders. We are alarmed by signs the crackdown exceeds the authority of regulators

under current law and violates the spirit of freedom and innovation that underpin the U.S. in the cryptocurrency world. It looks like regulators are attempting to block cryptocurrency firms from accessing conventional banking services. Former Congressman Barney Frank, architect of stricter banking regulations following the 2008 financial crisis, has alleged that signature bank, where he was a board member, was forced into liquidation by the New York Department of Financial Services because, quote, regulators wanted to send a very strong anti-crypto message, and YDFS has denied that allegation. But the claim seems to be supported by banking authorities' recent moves. On March 16th, Reuters reported the Federal Deposit Insurance Corporation was requiring potential buyers of signature bank to pass over,

the bank's crypto clients, essentially denying them further banking services. The FDIC denied this, yet when the sale went through, crypto customers were indeed excluded from the acquisition. Some have dubbed this sub-Rosa effort Operation Chokepoint 2.0, an apparent sequel to an Obama-era campaign to debank legal, but politically undesirable businesses, including gun manufacturers and payday lenders. These measures appear to circumvent not only due process, but to repeat violations for which previous administrations have already been firmly disciplined by both legislators and the legal system. Strikingly, the current head of the FDIC, Martin Groomberg, was an architect of the original Operation Chokepoint. That effort was ultimately met with a wave of lawsuits and hearings that,

by and large, concluded the government had abused its power. In part to help settle various lawsuits, the FDIC promised internal reforms to prevent regulatory overreach against legal businesses, including putting an end to unwritten suggestions to banks about their choice of customers. The sincerity of that promise now seems questionable. CoinDisc is working to uncover the real story behind recent incidents and discover whether there is really a coordinated effort to starve the crypto industry. But the appearance of the abuse of government power is enough to justify raising an alarm, even before the full picture is clear. Indiscriminate daisy cutter. This appearance of an unstated anti-crypto agenda must be distinguished from recent

legal actions against specific swindlers who have victimized the crypto world. We know very well that crypto, like many frontier technologies before it, is extremely appealing to fraudsters. We applaud the prosecution and likely imprisonment of alleged criminals, including Doe Kwan and Sam Bankman-Fried. But denying that developers of cryptocurrency tools and the creators of cryptocurrency services, the ability to manage their dollar funds in U.S. banks, is not an anti-fraud measure. It is a daisy-cutter bomb likely to cause indiscriminate carnage. Failing to establish a clear framework for the regulated issuance of digital assets similarly, ultimately makes fraud harder for consumers and law enforcement to stop, because it eliminates any route to legitimacy for

even the most high-minded digital asset-based projects. This apparent effort to strangle crypto is also having significant knock-on effects, as mentioned earlier. Bank officials are markedly less willing to speak on the record about crypto, or to take part in public panels on the subject believing that they will somehow fall a foul of regulators. And forget about trying to get a central banker to speak on the record. As a result, the debate over the future of the industry risks becoming a pro-crypto echo chamber, rather than a crucible from which real truths and real innovations can emerge. There is also the risk of crypto becoming politicized.

The digital asset community has often shunned party politics preferring to uphold larger principles of freedom and personal autonomy. In fact, constructive bipartisan crypto-legislative proposals have largely been the norm. Most notably, the comprehensive bill sponsored by Senator Cynthia Lummis, Republican from Wyoming, and Kirsten Gillibrand, Democrat from New York. But now the perception that the administration is anti-crypto is threatening to destroy that open collaboration. How someone feels about crypto could soon depend on political affiliation. No one wins if that happens. Cryptocurrency does have real-world uses and

benefits, including serving as a financial alternative for those facing repression and violence around the world. In just one example, cryptocurrency allowed $100 million in aid to quickly reach Ukraine in the wake of Russia's invasion, faster than aid was able to move through more formal government channels. More broadly, crypto has become a nexus of advocacy for tools that resist the dangerous concentration of digital power in the hands of companies whose hordes of data make surveillance and censorship their primary stock and trade. The worrying rise of surveillance capitalism is a topic of clear concern for many of the legislators whose authority bank regulators currently appear to be usurping. While speculation drives much of the market activity

in digital assets, much like the market for technology stocks, their prices are also driven by real demand from current users. Billions of dollars in value move around the world over the Bitcoin network every day. Un-American. Bitcoin and many other cryptocurrencies would survive even a sweeping, indiscriminate regulatory crackdown, functionally unscathed. That's their entire point. These systems were conceived with the goal of empowering individuals to control their own fates in the digital era, separately from government and corporate structures. In this respect, cryptocurrency tests principles of government restraint foundational to the American ethos. The religious, free speech, and other rights enshrined in the U.S. Constitution are bled.

blueprints for the spread of liberty around the world. They have helped increase human flourishing, happiness, and wealth for millions. These protections seem normal to many Americans now, but they were once considered dangerous and destabilizing forces by established powers. To this day, even on American soil, authoritarian's persistently return to old habits, seeking the illusion of safety through censorship and restriction. Given that reality, it will clearly be the project of many years to make financial autonomy as much of a taken for granted protection in democratic societies as freedom of speech and religion are today. If I'm wrong, and authorities do intend to restrain that progress,

they should declare that goal openly and pursue it through transparent democratic channels. I hope my conspiracy theory believing friend is incorrect, and the Biden administration is not out to kill crypto. Assuming that's the case, the White House needs to clearly demonstrate its positive intent. For instance, it should support a bipartisan effort to legislatively mandate that the SEC established clear guidelines on securities laws as they pertain to digital assets. Given the rampant cynicism that has erupted in response to the government's heavy-handed actions towards crypto, nothing short of that will make the industry believe it doesn't need

to flee the U.S. in search of safety. Go ahead. prove Harry wrong. All right, guys, back to NLW here. Great piece by Kevin, and glad to see CoinDesk taking this position. I've talked a lot in various interviews about how, to some extent, it doesn't matter if the entirety of the government apparatus is explicitly out to kill crypto and doing so in a coordinated fashion. What's clear and basically inarguable is that there is a meaningful portion of the US political apparatus, who are not trying to hide it, by the way, who are out to get rid of crypto. Those voices have been emboldened by what happened last year. For these people, the argument that they're pushing innovation offshore will not make a difference. They do not believe

that this is innovation. They do not believe that crypto has value. They would be very very much. They would be very happy, in other words, for crypto to simply not exist functionally in the United States. It does not matter to them that that's not their decision to make. They believe that they have been put in a position of power to dictate such issues, despite the fact that in many cases they were not elected, and they are clearly going to use that power to push crypto as far away from the U.S. as they can. The question then becomes, who among those who feel differently, who are excited about the possibilities of crypto, or who even are simply and truly neutral and don't like the idea of government officials making decisions about what people can and can spend their time on,

their money on, or their energy on. The question is what those categories of people are going to do about it. If they let these loud voices, the anti-crypto army that Warren and others are assembling, push crypto away from the U.S., what will that say to every other industry, every other private enterprise, every other sector, every other hobby, the stakes are not just crypto. The stakes are the freedom we have as individuals, as companies, and as a society to determine what we want to spend our time on and what we want to build. Until tomorrow, guys, be safe and take care of each other. Peace.