Crypto industry faces congressional scrutiny over banking concerns as a second committee sheds light on how crypto businesses have been treated by regulators, marking a shift in federal powers’ approach to digital assets.
Crypto’s Debanking Worries Hit Another Big Stage in U.S. House
The industry’s U.S. banking crisis may be retreating as a second congressional committee sheds light on how crypto businesses have been treated by regulators.
A Thursday hearing in the House of Representatives on regulatory pressures to cut off U.S. banks from crypto activities further demonstrated the tidal shift in how federal powers are talking about digital assets. The congressional scrutiny follows a dramatic recent exchange in federal court over the FDIC’s resistance to Coinbase efforts to reveal the agency’s letters to banks directing them away from crypto activity.
Coinbase is a popular online platform for buying, selling, and trading cryptocurrencies.
Founded in 2012 by Brian Armstrong and Fred Ehrsam, Coinbase allows users to purchase digital currencies such as 'Bitcoin, Ethereum, and Litecoin' with fiat currency.
The platform supports over 100 payment methods, including bank transfers and credit cards.
With its user-friendly interface and robust security features, Coinbase has become one of the largest cryptocurrency exchanges globally, serving millions of customers worldwide.
Regulatory Overreach and Abuse of Power
Coinbase Chief Legal Officer Paul Grewal testified about the abuse of authority from regulators who erected barriers between banks and crypto firms in a hearing of the House Financial Services Committee on Thursday. Grewal’s complaints about ‘regulation by exhaustion’ were met with wide agreement from Republican lawmakers eager to criticize the Biden administration’s crypto performance.
Regulators are entities responsible for overseeing and governing various aspects of society, economy, or industry.
They ensure compliance with laws, rules, and standards to maintain fairness, safety, and accountability.
Examples include government agencies, financial regulatory bodies, and professional organizations.
Regulators may impose penalties, fines, or revoke licenses for non-compliance.
Their primary goal is to protect the public interest by promoting transparency, efficiency, and responsible practices.
The lawmakers also agreed with Grewal’s view that financial regulators such as the FDIC publicly insisted that they weren’t against crypto while privately directing banks away from the industry. ‘Biden regulators resorted to vague, interpretive regulatory letters threatening banks with negative examination scores and fines if they continue their partnership with digital asset companies,’ said Representative Dan Meuser, a Pennsylvania Republican who leads the House subcommittee.
FDIC’s U-Turn on Crypto Documents
The FDIC jumped to release more documents before the court’s deadline this week, and Acting Chairman Travis Hill, who President Donald Trump elevated as he took office last month, said he ordered the agency’s staff to review supervisory communications with banks about crypto. The regulator publicly posted ‘a large batch of documents,’ he said.
Coinbase Chief Legal Officer Paul Grewal welcomed the move, saying that ‘Acting Chairman Hill has begun to right this wrong.‘ However, Grewal added that ‘much more discovery is required.’
Operation Chokepoint and Regulatory Scrutiny
Senator Cynthia Lummis revealed an internal Federal Reserve document in a Wednesday hearing that she said provided ‘hard proof of Operation Chokepoint.’ That’s the name the industry has adopted to characterize the set of informal, behind-the-scenes actions undertaken by regulators to pressure U.S. banks to debank crypto.
Operation Chokepoint was a US Department of Justice (DOJ) initiative launched in 2010 to prevent banks from doing business with companies that posed a heightened risk, including firearms manufacturers and dealers.
The program aimed to limit access to financial services for industries deemed high-risk by the government.
Banks were encouraged to terminate relationships with these companies to minimize regulatory scrutiny and potential legal liabilities.
However, critics argued that the initiative unfairly targeted specific industries and infringed on their constitutional rights.
The Fed’s policy seemed to suggest regulatory scrutiny for bankers who engage in controversial speech or activities. The interest from the House Financial Services Committee will continue next week with a February 11 hearing entitled ‘A Golden Age of Digital Assets: Charting a Path Forward.‘
