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Operation Choke Point 2.0: How U.S. Regulators Fight Bitcoin With Financial Censorship

This article is featured in Bitcoin Magazine’s “The Withdrawal Issue”. Click here to subscribe now.

A PDF pamphlet of this article is available for download.

“The reason that we are focused on financial institutions and payment processors is because they are the so-called bottlenecks, or choke-points, in the fraud committed by so many merchants that victimize consumers and launder their illegal proceeds,” Bresnickat explained to the club. “We hope to close the access to the banking system that mass marketing fraudsters enjoy — effectively putting a choke hold on it…”

This concerted effort, later labeled “Operation Choke Point”, targeted a wide range of business categories, including ammunition sales, drug paraphernalia, payday loans, dating services, pornography, telemarketing, tobacco sales, and government grants. This broad application of financial exclusion ultimately prompted multiple lawsuits and federal investigations into the conduct of both the DOJ and the Federal Deposit Insurance Corporation (FDIC), as well as harsh criticism from all corners.

“The clandestine Operation Choke Point had more in common with a purge of ideological foes than a regulatory enforcement action”, wrote Frank Keating, a former governor of Oklahoma who served in the DOJ during the Reagan administration, in a 2018 editorial for The Hill. “It targeted wide swaths of businesses with little regard for whether legal businesses were swept up and harmed. In fact, that seemed to be the goal.”

In 2017, the Trump administration’s DOJ wrote a letter to Congress indicating that Operation Choke Point was officially over. In 2018, the FDIC promised to limit its personnel’s ability to “terminate account relationships” and to put “additional training” into place for its examiners.

But in the years since the federal government so blatantly demonstrated its interest in dictating access to banking services and its power to do so deliberately with little or no consequences, many feel that little has changed.

Bank Runs, With Bias

On March 8, 2023, it was announced that the cryptocurrency-focused institution Silvergate Bank would be voluntarily liquidated by its holding company. The bank had been focused on serving cryptocurrency clients since 2013 when its CEO Alan Lane first invested in bitcoin. In 2022, it had acquired the technology behind Meta’s failed stablecoin project, Diem, with hopes of launching its own dollar-backed token. As the cryptocurrency market declined in late 2022, marked by the collapse of one of its biggest clients in cryptocurrency exchange FTX, the bank’s stock price plummeted. It likely did not help that at the same time, U.S. Senators Elizabeth Warren, Roger Marshall, and John Kennedy asked Silvergate to disclose details of its financial relationship with collapsed cryptocurrency exchange FTX.

Soon after, on March 10, 2023, almost ten years to the day from Bresnickat’s public detailing of Operation Choke Point, Silicon Valley Bank (SVB) was seized by the California Department of Financial Protection and Innovation and placed under FDIC receivership, marking what was then the second-largest bank failure in U.S. history.

Since 2021, the bank had been increasing its long-term securities holdings but, as the market value of these assets deteriorated amid U.S. dollar inflation and Federal Reserve interest rate hikes, it was left with unrealized losses. Simultaneously, its customers, many of whom were prominent businesses within the cryptocurrency industry and were similarly strained by economic conditions, were withdrawing their money. On March 8, 2023, SVB announced that it had sold more than $21 billion worth of securities, borrowed another $15 billion, and was planning an emergency sale to raise yet another $2.25 billion. Perhaps unsurprisingly, this sparked a run on its remaining funds, totaling some $42 billion in withdrawals by March 9, 2023. On Sunday, March 12, state and federal authorities stepped in; customers of Signature Bank had withdrawn more than $10 billion.

Since 2018, Signature Bank had maintained a focus on cryptocurrency businesses, with some 30% of its deposits coming from the sector by early 2023. Signature Bank had also accrued a large proportion of uninsured deposits, worth some $79.5 billion and constituting almost 90% of its total deposits. It was holding relatively little cash on hand — only about 5% of its total assets (compared to an industry average of 13%) — so it was poorly prepared for a run on crypto-friendly banks spurred by SVB’s issues. On March 12, 2023, the New York State Department of Financial Services closed Signature Bank and placed it under FDIC receivership as it faced a mountain of withdrawal requests. At the time, this represented the third-largest bank failure in U.S. history.

Following their seizures of SVB and Signature Bank, the U.S. Department of the Treasury, Federal Reserve, and FDIC described the takeovers as “decisive actions to protect the U.S. economy by strengthening public confidence in our banking system”. But others suggested the actions, particularly against Signature Bank, signified a blatant reemergence of the prejudice displayed during Operation Choke Point and connected to a larger effort to stymie cryptocurrency businesses.

“I think part of what happened was that regulators wanted to send a very strong anti-crypto message”, Barney Frank, a Signature Bank Board member and former congressman who helped draft the seminal “Dodd-Frank Act” to overhaul financial regulation following the Great Recession, told CNBC in March 2023. “We became the poster boy because there was no insolvency based on the fundamentals.”

Following an FDIC announcement that Flagstar Bank would assume all of Signature Bank’s cash deposits except for those “related to the digital-asset banking businesses”, the editorial board of The Wall Street Journal announced that Frank was right to call out this bias.

“This confirms Mr. Frank’s suspicions — and ours — that Signature’s seizure was motivated by regulators’ hostility toward crypto”, the board wrote. “That means crypto companies will have to find another bank to safeguard their deposits. Many say that government warnings to banks about doing business with crypto customers is making that hard.”

Targeting A New Choke Point

Public officials, financial professionals, and Bitcoin advocates had been pointing out an apparent bias against cryptocurrency businesses from the Biden administration well before the March 2023 bank runs. There were numerous policy events in the early part of 2023 to back up those sentiments.

A January 3, 2023, “Joint Statement on Crypto-Asset Risks to Banking Organizations” from the Federal Reserve, FDIC, and Office of the Comptroller of the Currency (OCC) noted that, “The events of the past year have been marked by significant volatility and the exposure of vulnerabilities in the crypto-asset sector. These events highlight a number of key risks associated with crypto-assets and crypto-asset sector participants that banking organizations should be aware of…”, effectively serving to dissuade financial institutions from taking on those risks.

A White House “Roadmap to Mitigate Cryptocurrencies’ Risks” released on January 27, 2023, indicated that the Biden administration sees the proliferation of cryptocurrencies as a threat to the country’s financial system and warned against the prospect of granting cryptocurrencies more access to mainstream financial products.

“As an administration, our focus is on continuing to ensure that cryptocurrencies cannot undermine financial stability, to protect investors, and to hold bad actors accountable”, per the roadmap. “Legislation should not greenlight mainstream institutions, like pension funds, to dive headlong into cryptocurrency markets… It would be a grave mistake to enact legislation that reverses course and deepens the ties between cryptocurrencies and the broader financial system.”

On February 7, 2023, the Federal Reserve pushed a rule to the Federal Register clarifying that the institution would “presumptively prohibit” state member banks from holding crypto assets as principal in any amount and that “issuing tokens on open, public, and/or decentralized networks, or similar systems is highly likely to be inconsistent with safe and sound banking practices”.

And on May 2, 2023, the Biden administration proposed a Digital Asset Mining Energy (DAME) excise tax, suggested as a way to force cryptocurrency mining operations to financially compensate the government for the “economic and environmental costs” of their practices with a 30% tax on the electricity they use.

For Brian Morgenstern, the head of public policy at Riot Platforms, one of the largest, publicly traded bitcoin miners based in the U.S., these policy suggestions, updates, and rule changes clearly indicate a larger attempt to hinder Bitcoin advancement by targeting financial choke points.

“The White House has proposed an excise tax on electricity use by Bitcoin mining businesses specifically — an admitted attempt to control legal activity they do not like, in the name of environmental protection”, Morgenstern explained in an interview with Bitcoin Magazine. “The only explanation for such inexplicable behavior is deep-rooted bias in favor of the status quo and against decentralization.”

Collectively, this behavior could influence the conduct of regulated banks, just as the pressure applied by the DOJ in the 2010s unduly limited the businesses in its crosshairs back then. For many, it’s clear that Operation Choke Point has been reinstated.

“‘Operation Choke Point 2.0’ refers to the coordinated effort by the Biden administration’s financial regulators to suffocate our domestic crypto economy by de-banking the industry and severing entrepreneurs from the capital necessary to invest here in America”, U.S. Senator Bill Hagerty, a member of the committees on banking and appropriations, told Bitcoin Magazine. “It appears that financial regulators have bought into the false narrative that cryptocurrency-focused businesses solely exist to facilitate or conduct illicit activities, and they seem blind to the opportunities for the potential innovations and new businesses that can be built.”

Pressure Where It Hurts

It may be fairly obvious how such a pressure campaign by federal regulators would hurt cryptocurrency-focused projects that depend on access to banks. But the larger ramifications of such financial prohibitions for retail customers and the advancement of Bitcoin in particular may not be.

Why should proponents of Bitcoin, a decentralized financial rail designed to function outside of the legacy system, care about a choke point in regulated financial institutions?

Caitlin Long, the founder of Custodia Bank, which is focused on bridging the gap between digital assets and legacy financial services, recognizes that for users in the U.S. to legitimately participate in Bitcoin, the regulatory landscape must be accommodating.

“I’ve been working for years to help enable laws to be enacted, in multiple U.S. states and federally, precisely because in the absence of legal clarity about Bitcoin, legal systems can become attack vectors on Bitcoiners”, she said in an interview with Bitcoin Magazine. “All of us live under legal regimes of some sort, and we should be aware of legal attack vectors and work toward resolving them in an enabling way.”

Long’s advocacy may best represent the potential that favorable or even just equitable financial access could mean for Bitcoin adoption and the advancement of its technology for everyone. Through her work, Custodia (then under the name Avanti) obtained a 2020 bank charter in its home state of Wyoming that made it a special-purpose depository institution capable of custodying bitcoin and other cryptocurrencies on behalf of clients. But, following a prolonged delay in approval of Custodia’s application for a master account with the Federal Reserve that would allow it to leverage the FedWire network and facilitate large transactions for clients without enrolling intermediaries, Custodia filed a lawsuit against the Fed last year.

“Operation Choke Point 2.0 is real — Custodia learned about its existence in late January when press leaks hit and reporters started calling Custodia to say they learned that all bank charter applicants at the Fed and OCC with digital assets in their business models, including Custodia, were recently asked to withdraw their pending applications”, Long said. “Reporters told us that the Fed’s vote on Custodia’s application would be a foregone conclusion before the Fed governors actually voted.”

But, more than just stifling innovators who seek to build bridges between Bitcoin and legacy financial services, targeting the choke points of Bitcoin platforms will only push these platforms outside of the scope of regulators, giving those with malicious intent an advantage over those who are attempting to play by the rules.

“Internet-native money exists. It won’t be uninvented”, Long added. “If federal bank regulators have a prayer of controlling its impact on the traditional U.S. dollar banking system, they will wake up and realize it’s in their interest to enable regulatory-compliant bridges. Otherwise, just as with other industries that the internet has disrupted — corporate media, for example — the internet will just go around them and they will face even bigger problems down the road.”

As was laid bare by the collapse of cryptocurrency exchange FTX, Bitcoin is still very much tied to the world of cryptocurrency at large in the portfolios of investors and the eyes of most people around the world. Indeed, the revelations around FTX’s criminal operations have been a case in point for regulators who seek the financial prohibition of cryptocurrency businesses. But this very prohibition may have enabled FTX’s operators to fleece billions in customer funds: Based on a Caribbean island, the vast majority of FTX’s business was outside of the jurisdiction of U.S. regulators. As U.S. regulators limit the growth of domestic businesses, offshore alternatives like FTX benefit.

And while many Bitcoiners may think that policymakers are powerless to determine the success of this permissionless technology, adverse or absent regulations can limit Bitcoin-specific businesses just as harshly as they do broader, cryptocurrency-related ones. In fact, it may be Bitcoin’s unique properties that make the current regulatory landscape such a daunting one for growth.

“Bitcoiners should care about Operation Choke Point 2.0 because certain policymakers are trying to take away our ability to participate in the Bitcoin network”, Morgenstern argued. “Moreover, Bitcoin is different. It is not only the oldest and most tested asset in this space, it is perhaps the only one that everyone agrees is a digital commodity. That means the on-ramp for inclusion into any policy frameworks will have less friction inherently, and Bitcoiners need to understand this.”

Relieving The Choke Points

Reviewing the recent, hostile policy updates from federal regulators, it seems clear that Bitcoin is firmly entrenched along with “crypto” in their minds. And, Bitcoin proponents in particular will agree, many businesses focused on other cryptocurrencies are apt to hurt investors. But some in the Bitcoin sector think that more education could help underscore the distinctions between Bitcoin and altcoins, and better protect Bitcoin from more justified regulatory limits on manipulated tokens and vaporware.

“Engage with your elected officials”, Morgenstern encouraged. “Help them understand that Bitcoin’s decentralized ledger technology is democratizing finance, creating faster and cheaper transactions and providing much-needed optionality for consumers at a time when the centralized finance system is experiencing distress. This will take time, effort and a lot of communication, but we must work together to help our leaders appreciate how many votes and how much prosperity is at stake.”

Indeed, for those elected officials who do recognize this bias as unduly harmful to innovation, continued advocacy from Bitcoin’s supporters is the best way out of the choke hold.

“This isn’t an issue where people can afford to be on the sidelines anymore”, Hagerty concluded. “I encourage those who want to see digital assets flourish in the United States to make your voice heard, whether that is at the ballot box or by contacting your lawmakers and urging them to support constructive policy proposals.”

This article is featured in Bitcoin Magazine’s “The Withdrawal Issue”. Click here to subscribe now.

A PDF pamphlet of this article is available for download.

#Operation #Choke #Point #U.S #Regulators #Fight #Bitcoin #Financial #Censorship

Talking Biz News Today – Sept. 15, 2023

Some of Friday’s top business news stories:

The Associated Press

Workers are on strike at all 3 Detroit auto makers for the first time in their union’s history, by Tom Krisher, Corey Williams and Mike Householder

TikTok is hit with $368 million fine under Europe’s strict data privacy rules, by Kelvin Chan


Mortgage rates inch up, lingering above 7%, by Anna Bahney

ABC News staffers ‘freaking’ out over reports Disney is in talks to sell the outlet, by Oliver Darcy

The Wall Street Journal

Inside Exxon’s Strategy to Downplay Climate Change, by Christopher M. Matthews and Collin Eaton

Instacart Set to Raise IPO Price Target After Successful Arm Debut, by Jaewon Kang and Corrie Driebusch


JPMorgan Chase to offer online payroll services as it steps up fight with Square, PayPal, by Hugh Son

More companies, especially airlines, warn higher costs will eat into profits, by Leslie Josephs


Salesforce to hire 3,300 people after layoffs earlier this year, Bloomberg reports

Google nears release of AI software Gemini, The Information reports

News about business journalism:

FT taps Smyth to be US energy editor

SABEW names shortlist for Best in Business Book award

Bloomberg launching “Bloomberg Brief” morning show

Smith, former Post-Intelligencer biz editor, dies at 75

President Clinton advisor joins Guardian, Chi Tribune investigations move, AI trailblazer on Bankadelic podcast

Australian Broadcasting Company hires Ryan as science and tech journalist















#Talking #Biz #News #Today #Sept

Canadian North Resources Inc. Announces Market Awareness Program

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TORONTO, Sept. 15, 2023 (GLOBE NEWSWIRE) — Canadian North Resources Inc. (“the Company,” TSXV: CNRI; OTCQX: CNRSF; FSE: EO0 (E-O-zero)) announces that the Company has commenced a market awareness program, aimed at enhancing its market visibility and engagement. As part of the initiative, the Company has engaged BTV – Business Television to improve exposure to capital markets. The engagement is for a period of twelve weeks BTV is a TV production and Digital Marketing Agency that helps issuers increase their brand awareness to a national retail and institutional investor audience through unique offerings. Services provided under the contract with the Company include digital marketing on well-known financial online platforms, and national television broadcast on BNN Bloomberg and FOX Business News.

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Additionally, the Company entered into an agreement with LFG Equities Corp. (‘’LFG’’) to perform market awareness and marketing services for an initial term of three months. The nature of the services to be provided by LFG include, but are not limited to, providing strategic advice, content development, media buying and distribution, and marketing services through social media channels and on-line media placements for the Company. The agreement includes an option to renew at the Company’s discretion.

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About Canadian North Resources

Canadian North Resources Inc. is an exploration and development company focusing on the critical metals for the clean-energy, electric vehicles, battery and high-tech industries. The company is advancing its 100% owned Ferguson Lake nickel, copper, cobalt, palladium, and platinum project that covers an area of 253.8 km2 of mining leases (96.9 km2) and surrounding exploration claims (156.9 km2) in the Kivalliq Region of Nunavut, Canada.

The Ferguson Lake mining property contains substantial resources in compliance with NI43-101 standards, which include Indicated Mineral Resources of 24.3 million tonnes containing 455 million pounds (Mlb) copper at 0.85%, 321Mlb nickel at 0.60%, 37.5Mlb cobalt at 0.07%, 1.08 million ounces (Moz) palladium at 1.38gpt and 0.18Moz platinum at 0.23gpt; Inferred Mineral Resources of 47.2 million tonnes containing 947Mlb copper at 0.91%, 551.5Mlb nickel at 0.53%, 62.4Mlb cobalt at 0.06%, 2.12Moz palladium at 1.4gpt and 0.38Moz platinum at 0.25gpt. The resource model indicates significant potential for resource expansion along strike and at depth over the 15 km long mineralized belt. (Refer to “Independent Technical Report, Updated Mineral Resource Estimate, Ferguson Lake Project, Nunavut, Canada, Prepared by Ronacher McKenzie Geoscience Inc. and Francis Minerals Ltd ” filed by the Company to on July 13, 2022). In addition, the Company has identified the pegmatites with lithium potential at the Ferguson Lake project.

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Sophy Cesar, Corporate Development

Phone: 905-696-8288 (Canada) 1-888-688-8809 (Toll-Free)

Email: [email protected]

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Cautionary Note Regarding Forward-Looking Statements

Certain statements contained in this news release, including statements which may contain words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, or similar expressions, and statements related to matters which are not historical facts, are forward-looking information within the meaning of applicable securities laws. Such forward-looking statements, which reflect management’s expectations regarding the Company’s future growth, results of operations, performance, business prospects and opportunities, are based on certain factors and assumptions and involve known and unknown risks and uncertainties which may cause the actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied by such forward-looking statements.

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These factors should be considered carefully, and readers should not place undue reliance on the Company’s forward-looking statements. The Company believes that the expectations reflected in the forward-looking statements contained in this news release and the documents incorporated by reference herein are reasonable, but no assurance can be given that these expectations will prove to be correct. In addition, although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. The Company undertakes no obligation to release publicly any future revisions to forward-looking statements to reflect events or circumstances after the date of this news or to reflect the occurrence of unanticipated events, except as expressly required by law.

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Binance CEO responds to rumors, says US executive is ‘taking a deserved break’

Binance Holdings CEO Changpeng Zhao (CZ) has shot down speculation surrounding the departure of Binance.US CEO Brian Shroder, noting that he is “taking a deserved break” after a successful stint at the company. 

Binance.US is a subsidiary of Binance Holdings, and the U.S. based exchange has seen a handful of other top executives recently step down from the firm amid lawsuits from the Securities and Exchange Commission and Commodities Futures Trading Commission. 

In a Sept. 15 statement via X (Twitter), CZ urged people to “ignore FUD” around the recent shuffling of execs, as he suggested that Shroder was leaving the firm amicably after accomplishing everything he “set out to do when he joined two years ago.”

“Under his leadership, Binance.US raised capital, improved its product and service offerings, solidified internal processes, and gained significant market share, all of which helped to build a more resilient company for the benefit of customers. We are grateful for his contributions,” CZ said.

Binance is facing lawsuits from both the SEC and CFTC over several alleged violations of SEC and CFTC laws, including the alleged sale of unregistered securities and mishandling of customer funds. As part of its lawsuit, the SEC claimed that the US and international branches of Binance have illegally commingled funds between each other.

In the midst of this lawsuit, Binance.US announced on September 13 that it was laying off a third of its staff and that Shroder was leaving his position as CEO. On September 14, an additional two executive departures were reported as both head of legal Krishna Juvvadi and chief risk officer Sidney Majalya decided to quit the company. The departures fueled speculation on Twitter that Binance may be facing worse legal troubles than previously understood.

Related: Binance.US not cooperating with investigation, US SEC says in filing

Seemingly referencing the lawsuits in his X post, CZ also asserted that the crypto market “is in a different place now than it was two years ago,” as crypto firms face an “increasingly hostile regulatory environment.” In his view, the new CEO for Binance.US, Norman Reed, is the “right person” to lead the US exchange in this new era.

Binance is the largest crypto exchange by volume in the world. It has come under increasing criticism since the third-largest exchange, FTX, went bankrupt in November and FTX executives were charged with fraud. Critics say that Binance has not been transparent enough about its business practices and has not proven that it is solvent. However, CZ has brushed off these concerns, stating that the firm has “no liquidity issues” and that claims against it are unfounded.