Inside the government conspiracy to kill crypto
Regulators ramp up coordinated efforts to crackdown on crypto
If you watch any crypto YouTubers, you’d probably notice one common narrative: The government is trying to kill crypto. As a journalist, clickbaity sensationalism like that has always been funny to watch.
But now, the claim that the government is colluding to cut crypto off at the knees is suddenly… not so far fetched. In fact, it’s getting increasingly difficult to see it any other way.
Case in point: The one bank that had spent years trying to get federal approval to do crypto banking the right way just got denied on very shaky grounds. I interviewed the founder behind that bank, Wall Street veteran Caitlin Long, and what she said was pretty shocking. Coinage just put out a short 5-minute synopsis video here.
Long essentially alleges that pressure from the White House to reign in crypto has trickled down into financial agencies that are supposed to be apolitical, and that it led to a coordinated rejection of the banking model she already worked with regulators on to get green-lit at the state level in Wyoming.
“It's clearly an executive branch coordinated thing,” she told me on an hour-long Twitter Spaces. “We know a lot about where it came from, because, again, people have come forward. There were pro-crypto and anti-crypto factions, you know, at work here. And some of the pro-crypto folks are really upset about how this went down.”
As many leaders in the space understand, the stakes of having crypto banking access cut off could not be higher. Not having a legal on-ramp for cash to connect to crypto can be life or death when it comes to the industry having a future worth building here versus Hong Kong, Europe, or any other friendlier jurisdiction.
Regulators have been out for blood since the collapse of FTX. Ironically, Caitlin’s bank Custodia is purposefully set up to prevent panics like what we saw play out in 2022 (and what is currently playing out with crypto bank Silvergate.) As a so-called Wyoming special purpose depository institution, Custodia does not use leverage to loan out customer deposits. By design, that means they are immune from the idea of a bank run, or seeing a wave of customers rush to withdraw all their assets.
That is not true for Silvergate, which saw nearly 70% of deposits drained in the wake of FTX’s collapse. As has been reported, the bank even had to tap billions in emergency funding from the Federal Home Loan Bank System — a program originally set up to help support mortgage lending in the 1930s. It also had to sell off assets to honor customer withdrawals and may very well be failing in slow motion. The company last week notified investors it would be late with a required financial filing as it evaluates “the impact that these subsequent events have on its ability to continue as a going concern.”
So here is the big question — and where the government plot to kill crypto becomes super simple to understand. If not regulating anyone led to crypto lenders BlockFi, Celsius, and Voyager all going bankrupt, what is the alternative path? Regulating them? Great! But, Silvergate was a regulated financial institution and that didn’t help either.
Caitlin’s point is that crypto is unique in how it needs to be handled. Particularly, she has tried to put forward a model that is overwhelmingly conservative in that it doesn’t leverage customer deposits. She also spent years ensuring the model was likely to be approved, before she says she was blindsided by a joint statement from a trio of America’s most powerful financial agencies in the Fed, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation.
“No answer, no answer, no answer, and then suddenly, boom, answer and the answer is not just ‘no,’ but ‘Hell no.’”
So the Fed turned Custodia down, and then turned their appeal down again. And frankly, Caitlin Long was crypto’s best shot — she literally worked side by side with regulators in Wyoming on her model and had even worked with senators on it, too. She called out FTX for being destined to end poorly, and claims she blew the whistle on fraud and turned evidence over to the authorities — all just to be ignored … and then slapped with a “Hell no.”
So it’s unclear what the Washington Machine wants to do with crypto next. But the DOJ’s fraud unit is taking a closer look at Silvergate, and any sort of new banking rules seem dead for now. As others have highlighted, it seems eerily similar to a prior push by the Obama White House to use banking access as a “chokepoint” tool to wipe out entire sectors (back then it was payday loans.)
I can understand wanting to be careful with linking crypto with traditional finance. But shutting the door on trying to do so safely ensures that bad actors will continue to proliferate, or that good actors will pack up and bring their business elsewhere.