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How U.S. Regulators Are Choking Crypto

I think Crypto is a valuable technology that's in its infancy and experiencing growing pains. Eventually, it has the ability to allow global commerce without foreign currency risk, which is a huge deal.

Like any technology, the first iterations are usually lousy and need years of refinement. Think most folks would hop on the first plane the Wright Brothers built and fly to NYC. Sorry, bad analogy. Nobody wants to fly to NYC.

How U.S. Regulators Are Choking Crypto

The effort would stifle American innovation and competition—and that seems to be the objective.

By Katie Haun, WSJ

March 27, 2023 1:03 pm ET

Some financial regulators appear to have seized on a series of high-profile meltdowns to go around Congress and try to freeze an entire industry out of banking services.

I spent more than a decade as a federal prosecutor on some of the worst threats our country faces—organized crime, the opioid epidemic, political corruption and terrorism. In my final years at the Justice Department, I shifted to cases involving emerging technology, including the then-nascent crypto category, from the Mt. Gox hack to the corrupt Silk Road agents. Years later, the space continues to attract crime and fraud, but it has also drawn some of the brightest engineering talent in the world. Public blockchains, the foundational technology of the ecosystem, are an important set of tools that reflect breakthroughs in cryptography and distributed computing. In addition to early financial-use cases, this sector provides new ways to develop, monetize and govern all kinds of software.

Unfortunately, members of this computing vanguard are being lumped in with the bad actors as part of a coordinated regulatory campaign to stymie progress in the sector. While other countries are putting in place laws and regulations, in the U.S. unelected officials are making major policy decisions about whether or not America should have a crypto industry. These efforts are misguided, reckless and potentially unconstitutional. Most important, they put America on the dangerous path of closing off the banking system to those disfavored by a particular administration.

In January, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Federal Reserve issued a statement notifying financial institutions to be on alert for customers operating in the space, saying decentralized networks are “highly likely to be inconsistent with safe and sound banking practices.” This ominous statement, coupled with seeming behind-the-scenes discouragement by their regulators, has led many banks to begin steering clear of almost any business touching blockchain technologies. In subsequent weeks, numerous banks shut their doors to this emerging sector, and regulators reportedly are conditioning sales of distressed banks on severing ties with the industry.


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A decade ago, in an effort called Operation Choke Point, the Justice Department, the Comptroller of the Currency and the FDIC tried to circumvent Congress using similar tactics—pressuring banks to cease business with specific industries, citing fraud prevention. Today, we are again seeing backroom tactics as a substitute for legislation, process and public regulation. Regardless of one’s position on the underlying issue, these significant policy decisions should be made in an open and transparent way.

This extralegal crackdown initially might not concern observers whose impressions of crypto are rooted in headlines about bad actors and outright criminals. But as four senators pointed out in a recent letter to the Fed, the FDIC and the OCC: “When the Bernie Madoff fraud was uncovered, regulators did not pressure banks to cut off access to other asset managers.”

The teams my firm works with are developing applications beyond financial services. One CEO is a former Green Beret whose company is building products to keep personal data safe using cryptography. Others include a serial entrepreneur creating developer tools for decentralized technologies, and a team building tax and compliance software for digital assets. Several Coinbase alumni are building products that help creators monetize digital content outside TikTok and Meta-owned Instagram. These aren’t scofflaws in cargo shorts committing theft.

Whatever one believes about crypto (I realize many smart and reasonable people don’t yet see the potential or need), major U.S. policy decisions should be made by Congress and state legislatures, not by unelected officials. If financial regulators are concerned about specific risks and believe new rules are appropriate, then they should follow procedures, including public notice and comment. If legislation is needed, that’s up to Congress, but unelected officials shouldn’t try to destroy an industry by freezing it out of the banking system.

Imagine if more than a century ago regulators had cut Ford and General Motors off from banking services because they considered automobiles too risky, or too competitive with trains and horses. In 1980, Massachusetts securities regulators barred citizens from buying stock in Apple’s IPO on the grounds that it was too “risky.” In the future, what if financial regulators were to warn banks against taking artificial-intelligence or alternative-energy customers because they’re too risky? And because of semiconductors we now know what happens when America fails to keep key industries onshore.

Meanwhile, other countries are working on regulating digital assets through a public process. Just this month, the U.K. reaffirmed its commitment to provide a framework for consultation to regulate digital assets, and the EU recently introduced a harmonized set of rules for all 27 member countries. Singapore, Dubai and Japan are all establishing rules to provide clarity to the industry. Hong Kong is developing a crypto-licensing regime, with the apparent blessing of Beijing. If American lawmakers don’t provide a framework for decentralized technologies, then a major frontier of technological innovation will begin to move to more hospitable economies.

America has long been a global leader in technology. Our regulators have risen to the occasion—not stifling innovation but embracing technological advances while maintaining a fair, honest and trusted playing field. But the expedient political view threatens to choke off innovation and punish legitimate actors. Every lawful business should have access to the banking system. Government censorship as a backdoor substitute for the legislative process has no place in finance—or any industry.

Ms. Haun is CEO and founder of Haun Ventures, an investment firm specializing in decentralized technologies. She is a director of Coinbase and a former federal prosecutor.

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