US financial regulators are rapidly closing crypto's key routes to the banking system, accelerating since FTX collapsed, pushing the industry to the fringes

Crypto's free pass is getting yanked as the most powerful US financial regulators rapidly close key doors to the country's banking system.

Bloomberg 2023-02-14

Context & Ripple Effects

FTX's collapse had already shifted Washington's attention toward whether existing oversight had failed, with Congress focused on the fallout from FTX. The banking-access response turns that scrutiny into an operational constraint rather than solely a debate over which agency should oversee crypto.

Related coverage quickly documented banks pulling back from crypto exposure, and later reports described crypto firms facing difficult applications for banking services. The important arc is a narrowing of the industry’s connection to dollar-based financial infrastructure.

First-order effects

Crypto firms seeking U.S. banking relationships face reduced access to accounts and payment rails as financial regulators tighten the routes between the sector and banks.
U.S. banks must reassess even limited crypto-company exposure, making them the immediate gatekeepers for firms that need conventional banking services.

Second-order effects

Crypto companies face slower, more burdensome onboarding for banking services, raising the operational cost of serving U.S. customers.
Regulatory pressure shifts competition toward firms able to secure and retain bank relationships, while advocates characterize the resulting policies as making U.S. operations unfeasible.

Third-order effects

If bank-access restrictions continue to substitute for comprehensive legislation, crypto regulation will be shaped increasingly through financial-infrastructure gatekeepers rather than a single, settled rulebook.

The trend: Post-FTX crypto oversight is moving toward access-control regulation, in which bank connectivity becomes a central lever for constraining the industry.

Discussion

@jespow Jesse Powell on x
Oh man, all I had to do was fill out a form on a website and tell people that staking rewards come from staking? Wish I'd seen this video before paying a $30m fine and agreeing to permanently shut down the service in the US. How dumb do I look. Gosh. ⛽️💡 https://www.cnbc.com/...
@s_alderoty Stuart Alderoty on x
Over 40 million Americans own crypto. Most of those are between the ages of 18-34 and are demographically and racially diverse. That's a lot of votes. Gary Gensler is a political liability.
@patrick_novum Patrick Tan on x
What if $BUSD as a security was a red herring all along? Stay with me for a minute. Looking at the case law, unless there are facts we are unaware of, it would be very challenging and nothing short of legal gymnastics to even attempt to argue $BUSD on Paxos is a security.
@johnreedstark John Reed Stark on x
Senate Banking Comm. holding hearing Tuesday titled “Crypto Crash: Why Financial System Safeguards are Needed for Digital Assets.” @leereiners testimony's a must read, especially re how SEC and dozens of federal courts have consistently applied Howey Test. https://www.banking.sen…
@pt Parker on x
Crypto is like that kid in school who decides they'd rather get detention to look cool in front of the other kids than go have fun after school. This is rational to the extent the consumer crypto market is dead & all there is to do is to signal values to the base. Still, sad! htt…
@johnreedstark John Reed Stark on x
From Sunday to Monday: $2.7B of outflows from Binance. On Monday morning, some $144M of BUSD were redeemed for dollars and BNB tumbled 8%. The US crypto-regulatory carpet bombing continues. And a crypto-bank run akin to 1929 has only just begun. Get. Out. https://www.wsj.com/...
@twobitidiot @twobitidiot on x
If regulators go after Coinbase or Circle you'd know we have an all out war, but until that happens, bigger fights are on the custody and banking fronts.
@twobitidiot @twobitidiot on x
I made 15+ calls this week on policy: 1) Enforcement actions (so far) are facts based (targeting Binance mostly + the mechanics of Kraken's staking) 2) The custody rule for investors might get proposed but has much mightier enemies than crypto 3) Banking access the real issue
@erikvoorhees Erik Voorhees on x
cc @GaryGensler https://twitter.com/...
@tree_of_alpha @tree_of_alpha on x
How on Earth does BUSD register as a security? Where is the expectation of profit? Are y'all buying BUSD because it's going to $2? Gary Gensler is on an unhinged, unchecked crusade against Crypto and will keep doing so as long as he is permitted to.
@bykowicz Julie Bykowicz on x
WSJ front page, 2/14/23: “The walls are closing in around crypto.” https://www.wsj.com/...
@belisarius2020 Bill Morgan on x
It is a great and noble aspiration and you called for it since Ripple was sued but even under sustained attack from the SEC the crypto industry is riven by divisive tribalism- a house divided cannot long stand up to the SEC's salami slicing. https://twitter.com/...
@bitboy_crypto Ben Armstrong on x
BREAKING: The SEC is considering going after #Bitcoin because the price sometimes goes up and sometimes goes down. Sources are saying oranges are also becoming a high level target for the SEC because the $BTC logo kind of looks like an orange if you squint.
@metalawman @metalawman on x
The SEC is going after stablecoins now. The entire digital assets ecosystem is under attack. The stakes are enormous. Who will stand and fight back? “We must all hang together or, most assuredly, we shall all hang separately.”—Ben Franklin https://www.coindesk.com/...
@thewallstbulloz @thewallstbulloz on x
Yet again, Gary Gensler has crashed the #Crypto markets, and people really think this guy and the SEC are for retail investors, he is an absolute joke. I'm sorry they are a bunch of corrupt fk wits 😡 Try updating the security laws from the 1930s
@kmsmithdc Kristin Smith on x
“It certainly feels, from an industry perspective, like there's a crypto carpet bombing going on right now,” said Kristin Smith, CEO of Blockchain Association, a crypto industry group. https://www.wsj.com/...
@zooko @zooko on x
Matt Levine is killing it again. https://www.bloomberg.com/... https://twitter.com/...
@johnedeaton1 John E Deaton on x
2 years ago I recommended industry players establish a crypto consortium if you will - focused on coordination between companies being sued, receiving wells notices, voluntary request letters, etc. We need a unified defense as well as going on the offensive. It's never too late. …
@sentosumosaba @sentosumosaba on x
Doesn't stop. Bloomberg cites Gensler & gang are working on proposal that would make it difficult for crypto firms, Hedge/Pension Funds to hold digital assets on client's behalf. Vote is Feb. 15 3 out of 5 yes votes take the draft to the next step. https://www.bloomberg.com/...
@kjspeakstruth Katanga Johnson on x
Crypto's free pass is getting yanked as the most powerful US financial regulators rapidly close key doors to the country's banking system. My latest @business with the talented @Yueqi_Yang and @austwein https://www.bloomberg.com/...
@leerzeit Mr. Huber on x
Found the form @GaryGensler was talking about. Looks pretty clear to me 🤷 https://twitter.com/... https://twitter.com/...
@caitlinlong_ Caitlin Long on x
IF ONLY THERE WERE AN EASY WAY to prove that this statement is true...hmmm...🤔 https://twitter.com/... https://twitter.com/...
@annairrera Anna Irrera on x
Hedge funds, private equity firms and pension funds could have a tougher time working with many crypto firms under a draft proposal from a top US regulator https://www.bloomberg.com/... via @bpolitics
@matthewstoller Matt Stoller on x
A lot of people owe SEC Chair Gary Gensler an apology for claiming he would do nothing on crypto. The entire space is getting utterly crushed. 👍👍👍https://www.wsj.com/...
@emilyjnicolle Emily Nicolle on x
Crypto's free pass is getting yanked as the most powerful US financial regulators rapidly close key doors to the country's banking system https://www.bloomberg.com/...
@smdiehl Stephen Diehl on x
There is a kind of poetry to the people who for years talked about building alternative financial systems built purely on Ponzi financing getting hot and bothered about losing banking access to inflows of dollars. Saying the quiet part out loud a bit. https://www.bloomberg.com/..…
@johnedeaton1 John E Deaton on x
@GaryGensler is not an honorable man. Since the SEC invented a new Howey theory called the “embodiment theory”, unsupported by the law, let me say Gensler is the embodiment of a corrupt system. $30M fine against a good actor when there exists no clarity. Disgusting. https://twitt…
@zerohedge @zerohedge on x
Biden admin positioning itself as anti-crypto crusaders is an interesting pivot US Crackdown Seeks to Push Crypto Back to Fringe of Finance https://www.bloomberg.com/...
@nic__carter @nic__carter on x
the analogy for crypto wrt regulation isn't “the internet”, it's capital markets. it's not “imagine if the US banned the internet” but rather “imagine if the US never developed a securities market”
@ellebeyoud Lydia Beyoud on x
Coming proposed restrictions on crypto firms' ability to custody assets could make it harder for hedge funds & private equity firms to work with them. New scoop from @allyversprille & me ahead of SEC's Weds meeting https://www.bloomberg.com/...
@muyaoshen @muyaoshen on x
“If you run a crypto exchange and you want to set up a meeting with regulators to talk about how to write regulations to prevent a repeat of the recent crypto collapses, they will not trust you, because that is what FTX was saying too.” https://www.bloomberg.com/... via @crypto
@matt_levine Matt Levine on x
This newsletter has disclosed only the information that I wish, not the information required by law. https://www.bloomberg.com/...
@smdiehl Stephen Diehl on x
Maybe we could skip the “ah yes, innovation” and “new financial system” bullocks the next time and just talk to some actual software engineers. Because it's really only like ex-IB folks and hustle grifter bros who believed that nonsense. https://www.bloomberg.com/...

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