The United States is cracking down on the cryptocurrency industry, New York Department of Financial Services rebuts Choke Point 2.0.

The blockchain media CoinDesk has made a rare official statement on a specific topic, with the editorial viewpoint "It Sure Looks Like the U.S. Is Trying to Kill Crypto" sparking discussions in the community. Even the well-known podcast Unchained has produced an episode "Is the government trying to kill off the crypto in the US" to delve into a series of recent events in the U.S. crypto industry.

In the article, CoinDesk points out that most of the actions taken by the U.S. government are punitive rather than constructive, and these attacks will not protect Americans from fraud and scams. On the contrary, it is highly likely to drive technological innovation overseas. What exactly has the U.S. government done? And what is this action referred to as Choke Point?

What is Choke Point 2.0?

Choke Point was a plan during the Obama administration in 2013 aimed at marginalizing specific industries operating legally - not through legislation, but by exerting pressure on the banking industry. At that time, the main targets were gun manufacturers and the adult entertainment industry. The U.S. Department of Justice coordinated with banking regulators FDIC and OCC to pressure member banks to draw lines with specific targets for marginalization.

Today, the marginalization of the crypto industry, known as Choke Point 2.0, does not involve legislative prohibition of the industry's development but rather makes it more difficult for them to survive by reducing their interaction with banks and cutting off their financial flow.

What has the U.S. government done?

• On January 3, the Federal Reserve, FDIC, and OCC issued a joint statement on the risks for banks engaging in cryptocurrency businesses, strongly discouraging them from dealing with cryptocurrencies based on safety and soundness considerations.
• On January 27, the Federal Reserve rejected the application of crypto bank Custodia to become a member of the Federal Reserve System for two years, citing safety and soundness risks, and also denied its primary account application.
• On March 12, Signature Bank was forced to liquidate by the New York Department of Financial Services (NYDFS). The NYDFS's action was seen as a message against crypto by former Congressman Barnett Frank, a board member of Signature Bank and a key figure in the Dodd-Frank Wall Street Reform and Consumer Protection Act. Reports indicated that FDIC requested potential buyers of Signature Bank to abandon its crypto customers. Although FDIC denied this, crypto customers and their crypto network Signet were indeed excluded from the acquisition when the deal was completed.
• In the President's Economic Report submitted to Congress, the White House Council of Economic Advisers raised doubts about crypto assets, stating that they have not provided any intrinsic value, have not replaced fiat currency, have not improved financial inclusion, or made payments more efficient. Instead, their innovation mainly creates artificial scarcity to support the price of crypto assets, almost entirely denying the technology and benefits of the crypto industry.
• On March 22, the U.S. Securities and Exchange Commission (SEC) issued a Wells notice to Coinbase, warning the exchange that it may be violating U.S. securities laws.
• On March 27, the world's largest cryptocurrency exchange, Binance Holdings Ltd., and its CEO Changpeng Zhao, were sued by the U.S. Commodity Futures Trading Commission (CFTC) for alleged violations of trading and derivative rules.

NYDFS Refutes Choke Point 2.0 as Absurd

According to CoinDesk's report, Adrienne Harris, head of the New York Department of Financial Services (NYDFS), stated that the decision to close Signature Bank was due to "new bank runs" and has nothing to do with cryptocurrencies. She called the notion of Choke Point 2.0 extremely absurd and mentioned that the rules they established require virtual asset companies to establish robust banking partnerships with well-regulated banks.

The Future of the U.S. Crypto Industry

However, as discussed on the Unchained program, the reasons banks are keeping their distance from the crypto industry include requirements for reporting crypto-related activities, complex paperwork, and future capital adequacy requirements. Coinbase's interactions with the SEC have not yielded positive responses despite multiple communications. The U.S. crypto industry needs more guidance rather than enforcement. If the current situation continues, the U.S. is likely to push technological innovation overseas. Coinbase executives are scheduled to visit the UK soon, meeting policymakers, regulators, and the media, attracted by Europe's potential acceptance of crypto assets and the social commitments they can offer. Coinbase has also launched the Crypto435 initiative to engage people in supporting crypto policy changes in all 435 U.S. congressional districts.

Will the stablecoin legislation and related policy-making expected to be enacted in the U.S. this year provide a clearer path for the crypto industry? Or as SEC Chairman Gary Gensler stated, do existing securities laws "cover most activities in the crypto market," indicating that crypto assets do not need additional legislation?