Operation Chokepoint 2.0: Why is The Government Targeting Crypto?
FREE BTC Breakdown | CBDCs in US | Polygon zkEVM | PCE Price Action | Trader Joe Liquidity Book
GM, this is your Daily Bolt briefing.
If you’ve been paying attention lately, you may know that we’ve been hard at work producing breakdowns, releasing 8 just last month.
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With this research report, we’re taking things back to the root of crypto. With more prominent parties pulling away from the U.S. Dollar, increasing calls for hyperinflation, and regulators trying to stop the crypto movement, it’s imperative that our industry launches information highlighting the original use cases of cryptocurrencies…
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1/ Bell Curve Roundup - CBDCs : A Wolf In Sheep's Clothing
Preview: In this episode of Bell Curve, Mike, Jason, Vance, and Michael explore the implications of CBDCs and how governments will use CBDC efficiencies as a veneer for control. Click here to listen to the full episode.
Length: 73 mins | OUR NOTE: 5 mins
VCs are not fans of early-stage companies holding their treasury in even safe assets like T-bills due to the risk of losing value.
There is a negative view on CBDCs (Central Bank Digital Currency), as there is already digital money through Apple Pay and credit cards, and the only reason for CBDCs would be to have write access and reverse transactions.
Ron DeSantis banned CBDCs in Florida and said that CBDCs are a potential danger to society.
CBDCs would move at a slow pace in the US, with test cases in South America, Southeast Asia, and Europe being examples.
2/ Bankless Shows - Polygon Team on zkEVM Launch
Preview: In this episode of Bankless, Ryan is joined by Polygon's Jordi and Co-Founder Mihailo to talk about the launch of Polygon’s zkEVM! Click here to listen to the full episode.
Length: 58 mins | OUR NOTE: 4 mins
Here are some key takeaways:
Polygon has launched the zkEVM, a technology that offers scalability, security, and EVM (Ethereum Virtual Machine) compatibility for scaling Ethereum.
The withdrawal time for an optimistic roll-up is longer than that of a ZK (zero-knowledge) roll-up, making it less advantageous.
The zkEVM network offers iron-clad security and has a fully secured roll-up with higher transaction fees and limited throughput, making it ideal for DeFi applications where security is a priority.
The zkEVM is available on the actual mainnet and has been tested for months on the testnet with thousands of applications, smart contracts, transactions, and users.
3/ Coin Bureau - Crypto Weekly News ft. Benjamin Cowen - Apr. 3, 23
Preview: In this episode, Guy talks about the crypto market pop, CFTC vs. Binance, Ethereum upgrade and Benjamin Cowen's crypto analysis. Click here to listen to the full episode.
Length: 21 mins | OUR NOTE: 4 mins
Here are some key takeaways:
The crackdown of the CFTC on Binance seems to have escalated after the White House published its report which included a lengthy section about why crypto is bad.
Last week, the crypto market posted some modest gains after the Personal Consumption Expenditures or PCE for February came in slightly lower than expected.
Prices are starting to move more sideways.
It’s the same price action after the Silvergate’s Exchange Network or SEN was shut down.
4/ blocmates - Trader Joe's Liquidity Book
Preview: In this episode, blocmates discusses Trader Joe and its innovative Liquidity Book solution, the product and its features. Click here to listen to the full episode.
Length: 46 mins | OUR NOTE: 4 mins
Here are some key takeaways:
The Trader Joe DEX was launched on Avalanche during the Avalanche Rush incentive program; it had Sushi V2 style tokenomics which allowed people to deploy a lot of capital and farm the reward token.
People are beginning to realize the benefits of using Trader Joe with Arbitrum.
The liquidity book is a great user experience, but still a little confusing.
Liquidity Book is an innovation inspired by Uniswap V3; with Liquidity Book, users can choose their own ratio for supplying liquidity (e.g. 80/20) rather than a 50/50 pair.
Uniswap V3 introduces concentrated liquidity, which allows LPs to choose a specific price range to provide liquidity for.
For example, an LP can choose to only provide liquidity for USDC in the 1500 to 2500 price range when paired with ETH at $2000.
On the Revelo Intel platform, we’ve summarized these 4 episodes and in total, would have saved you: 3 hours!
In crypto, fast info is an asset you need. ⬇️
On The Brink Ep. 412 - David Thompson on Operation Choke Point 2.0
In this episode of On the Brink Podcast, Nic Carter is joined by David Thompson managing partner at Cooper & Kirk to talk about Operation Choke Point 2.0, Felony for lying in congress, Whistleblowers of Custodia Bank, and more!
Read or listen to our notes below to learn more.
Operation Chokepoint 2.0 & 1.0
Nic
David Thompson, the managing partner of Cooper and Kirk, recently wrote a white paper covering the provocations in detail connecting to the Choke Point 1.0
He has covered constitutional litigation, covering the 1st and 5th amendments.
David
History repeats itself, the Choke Point 2.0 is based on something about 11 years in the past, in which the Obama administration used its regulatory powers to target industries that they didn't like.
Reputations were damaged as a result of Federal bank examiners conducting a whisper campaign.
11 years ago, the banking regulators targeted gun stores and payday lenders, resulting in a liquidity event and restoring the relationships of each bank.
Unelected banking regulators are supposed to focus on credit risk and interest rate risk, and liquidity risk, instead of targeting other industries for their punitive action.
Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and Federal Reserve Bank(Fed) issued a joint statement that has been met with concern from banking officials and industry participants.
Their team covering the Chokepoint 2.0 are generalists, and they do First amendment cases and Second Amendment cases, property rights, civil rights, and separation of power cases.
One of the light motifs of David's career over the last 29 years, has been fighting the bank regulators, it started in the 1980s when some savings and loans were insolvent.
Congress came in that instance in 1989, in a law called Five Registered Investment Advisors (RIA) pulled the rug out underneath their clients overnight in 120 banks.
There were almost 120 financially stable banks in 1989, that did go out of business because of the instance that congress rebutted with a law called ‘Five RIA’.
Cooper & Kirk
Cooper and Kirk's role in Choke Point 2.0 was to focus on the banking industry regulators as the tools to implement their vision.
Cooper and Kirk brought a lawsuit on behalf of advanced America, the 2nd largest payday lender in the US, and their trade association, the Community Financial Services Association.
Cooper and Kirk's claim was one for violation of due process as well as the violation of the Administrative Procedures act.
Under the due process clause that protects life, liberty, and relevant properties, the government cannot deprive people of their property without due process.
The courts have been clear that if the government defames or stigmatizes a person without notice and an opportunity to be heard, they have a claim for due process.
The court rejected the government's motion to dismiss and allow the discovery of internal emails, which revealed that FDIC officials were writing emails opposing payday lending.
FDIC officials systematically tried to cut payday lenders off from the banking industry, violating statutory responsibilities.
Regulators only have the authority given to them by Congress, and they cannot cut off entire industries from the banking sector.
Regulators in the Democratic Republic must allow the public to comment on their rule or law before it becomes final if they plan to rule out the entire banking sector.
The Democratic Party wants to use regulatory tools to punish industries they don't like, and a white paper was written to advertise this issue to potential plaintiffs in injured parties.
Relevant constitutional protections
The crypto industry is facing a multipronged attack from regulators, including the seizure of Signature Bank.
A lot of retail investors and sophisticated investors run the full range of people who are invested either financially or ideologically in the Crypto area.
Payday lending was much more of a niche product, many of the companies were publicly traded.
The state of New York states that banks don't give enough information and will get a cease and desist letter; a letter for prompt corrective action.
New York in general is saying that banks don't give enough information and will get a cease and desist letter; a letter for prompt corrective action.
There's a doctrine called 'The Bank Examination Privilege', that says communication between a bank and the regulators is privileged and can't be made public.
The Felony of lying to Congress
Lying to Congress is a felony, in which banks will face more onerous inquiries or monitoring if they handle crypto customers.
There is an informal threshold on the percentage of assets that banks can take about crypto clients which are 15% in range.
The challenges faced by banks in the crypto space are due to increased compliance requirements and the need to have a smaller fraction of deposits in the space.
The challenges happening right now in the Crypto space led to several provocations, such as the collapse of FTX, the voluntary liquidation of Silvergate, and the seizure of Signature.
There has been a lack of transparency in the crypto space, leading to a lack of trust in the industry.
Whistleblowers and the denial to Custodia Bank
Custodia Bank's application for a master account was denied after 27 months, and the Board only issued its decision after Custodia brought suit in federal court.
A master account with the Fed is a record of financial transactions that reflects the financial rights and obligations of an account holder; the place where opening and closing balances are determined
Whistleblowers have reported that the FDIC is not allowing people to bid on the lettering system, which is illegal.
There are two grounds for bringing due process claims: if a bank loses a banking relationship, and if a company is put out of business.
There will be a violation of due process if a company is not given notice and an opportunity to defend itself.
The Administrative Procedures Act is a blatant violation of due process, as it entitles the plaintiff to discovery and the right to take the government's versions of the facts as true.
Signature Bank was not insolvent and the government has admitted that the reason they took it over was due to a lack of information.
The Collapse of Silvergate, Signature Bank, and FTX
David
Regarding Silvergate, the New York State has said that there was no credit risk, liquidity risk, interest rate risk, and a failure to provide information.
There is a possibility of a state rights claim being made, but this will be difficult because the federal government is the highest federal law, and it does preempt contradictory state law claims.
State-chartered institutions are beholden to find rules, and they owed the affected industry a notice and comment period as customary.
Silvergate made a calculated risk to take punitive action right now, and if the case goes to the Supreme Court, they expect it to be receptive to their arguments.
The risks of Silvergate could play out in the Fannie Mae and Freddie Mac litigation, where the government may get an extra measure of deference, and be forced to pay for what they've done.
Nic
The collapse of Silvergate and the Seizure of Signature Bank could be used as evidence that crypto is unsafe and unsound.
Silvergate was voluntarily liquidated, and the stigmatization of their audit firm and reputation was attacked by Elizabeth Warren.
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Objectives of Litigation
David
The near pendency of a lawsuit tends to force the regulators to act a little less badly and not atone for their sins every night.
Congress should require federal bank regulatory agencies to explain why the financial system needs protection from blockchain technology.
In Chokepoint 2.0 they have a symbiotic relationship with members of congress fighting to get to the truth and publishing it eventually.
Operation Choke Point 2.0's refusal to follow notice and comment regulations has resulted in arbitrary, capricious, and undemocratic agency activity.
Congress should require bank regulators to provide banking services to customers in the crypto industry.
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