Biden’s Crypto Conundrum: Unveiling the Real Impact of Operation Choke Point 2.0

 

Scott Johnsson, a finance lawyer at Van Buren Capital, has shed light on what he calls "Operation Chokepoint 2.0," a series of intense regulatory measures by the Biden administration aimed at the cryptocurrency sector. Despite some positive gestures, such as the approval of a spot Ethereum ETF, Johnsson asserts that the administration's underlying approach remains decidedly hostile toward Bitcoin and other cryptocurrencies.

Persistent Regulatory Clampdown

Johnsson criticizes the Office of the Comptroller of the Currency (OCC) for rejecting the “fair access” banking rule. This rule, introduced by former Comptroller Brian Brooks, was intended to prevent federally chartered banks from denying financial services based on political or ideological grounds. The administration’s dismissal of this rule highlights a broader reluctance to eliminate regulatory barriers that negatively impact crypto businesses.

This resistance is further exemplified by aggressive enforcement actions against major exchanges such as Coinbase, Binance, and Kraken. Johnsson notes that these actions are based on a broad and expansive interpretation of what constitutes a security, leading to an environment of uncertainty and apprehension among crypto enterprises.

The Securities and Exchange Commission (SEC) has been particularly active, issuing Wells Notices to several key industry players, including Consensys, Uniswap Labs, and Paxos. Paxos, in particular, was forced to halt the issuance of the BUSD stablecoin. These actions showcase the SEC’s willingness to apply securities law broadly, potentially hindering innovation within the sector.

Furthermore, the SEC has expanded the “dealer rule” to include DeFi platforms, mandating that they register as exchanges and comply with Regulation ATS. This development questions the decentralized nature of these platforms and casts doubt on their ability to operate without significant changes.

Legislative Maneuvers and IRS Intrusion

A pivotal move by the Treasury involved redefining "brokers" within critical legislation, with the IRS broadening these definitions to potentially include entities far beyond traditional brokers. This shift could have profound implications for DeFi platforms, severely restricting their operations within the US.

Johnsson also highlights the Department of Justice’s (DOJ) aggressive stance against privacy-focused tools like Tornado Cash and Samourai Wallet, applying money transmission charges that pose serious legal threats. These actions represent a significant shift in how blockchain privacy innovations are treated under US law.

Institutional and Banking Resistance

The Federal Deposit Insurance Corporation (FDIC) has reportedly advised banks to limit their crypto deposit thresholds to 15 percent and to seek approval for new crypto business ventures. Similarly, the Federal Reserve’s denial of Custodia’s application for membership and a master account further demonstrates efforts to restrict the banking sector’s engagement with crypto.

Joint statements from the Federal Reserve, FDIC, and OCC highlight the perceived risks associated with crypto, effectively discouraging banks from direct involvement with crypto assets.

Political and Legislative Hurdles

The political climate remains challenging, with over 100 Democrats and a few Republicans supporting Senator Warren’s letter that exaggerated the role of crypto in financing terrorism. Senator Warren’s Digital Asset Anti-Money Laundering Act (DAAMLA) proposes stringent restrictions that could effectively ban crypto.

Johnsson also notes the administration’s threats to veto legislative efforts like SAB 121, which the Government Accountability Office (GAO) criticized for improper promulgation. Proposed legislation imposing heavy taxes on crypto miners and blocking stablecoin legislation are part of the administration's broader strategy to curb the growth of the crypto sector.

Johnsson concludes that the Biden administration’s actions represent a comprehensive set of obstacles that significantly impede the potential for Bitcoin and other cryptocurrencies in the US. He emphasizes that reversing these measures would only bring the sector back to the neutral stance of the previous administration.

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