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US Watchdog Crushes Crypto’s “Operation Choke Point 2.0” Theory

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  1. Regulators push back against claims of unfair crypto targeting.
  2. Crypto firms face scrutiny over legal compliance and financial risks.
  3. Misinformation about FDIC protection raises concerns.

A Wall Street watchdog group has challenged claims that financial regulators unfairly targeted the crypto industry. Ahead of a Feb. 6 hearing by the House Financial Services Committee’s Oversight and Investigations Subcommittee, Better Markets banking policy director Shayna Olesiuk pushed back against the “Operation Choke Point 2.0” narrative.

This theory suggests that U.S. regulators deliberately debanked digital assets firms, a claim echoed by industry leaders and some lawmakers. Olesiuk argued that the industry placed itself under regulatory scrutiny by engaging in questionable activities.

She pointed to the collapse of banks like Silvergate, Signature, and Silicon Valley Bank as evidence of crypto’s financial instability. These failures triggered significant economic disruption, raising alarms among regulators about the sector’s unchecked risks.

Crypto’s Rising Financial Risks

According to reports, the rapid growth of digital currencies has introduced market instability, with extreme price swings affecting investors and financial institutions. The total digital assets market cap soared to $3 trillion in 2021 before plummeting to around $1 billion in 2022, only to rebound post-2024 elections. Bitcoin alone has seen up to 30% single-day drops, fueling speculation-driven volatility concerns.

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Beyond market swings, firms have also been accused of misleading consumers. Reports indicate that some companies falsely claimed their holdings were insured by the Federal Deposit Insurance Corporation (FDIC).

Such misinformation has the potential to trigger bank runs, as customers mistakenly believe their assets are protected. Regulators have flagged these deceptive practices but have yet to impose strict penalties, sparking criticism of enforcement leniency.

Crypto’s Influence on Policy and Public Trust

The digital asset industry’s influence extends beyond markets, with significant spending on political campaigns. In the 2024 elections, crypto-backed groups reportedly poured nearly $200 million into ads targeting lawmakers critical of digital assets.

Despite this aggressive lobbying, many voters remain skeptical of crypto, linking it to financial fraud, money laundering, and economic instability. Regulators insist that banks have the right to assess risks when providing services, including to crypto firms.

While crypto advocates argue for broader banking access, watchdog groups maintain that oversight is essential to prevent systemic financial harm. As the debate continues, the industry faces mounting pressure to comply with existing financial laws or risk further scrutiny from lawmakers and regulators.

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XRP Controversy Deepens: Better Markets Backs SEC’s Appeal

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Key Takeaways

  • Better Markets filed an Amicus brief supporting the SEC against Ripple Labs, emphasizing investor protection.
  • The district court’s ruling excluded XRP’s secondary market sales from securities regulation, sparking concerns.
  • Legal precedents affirm the broad application of the Howey test to cryptocurrency offerings.

Non-profit organization Better Markets has stepped into the Ripple vs. SEC legal battle, filing an Amicus brief supporting the SEC’s appeal. Better Markets argued that the district court’s exclusion of secondary trading platform sales from securities laws undoes essential investor protections for XRP.

According to the brief, such an exemption puts both retail and institutional investors at risk of significant fraud in the fast-changing cryptocurrency markets. Ripple’s public marketing of XRP as a valuable digital asset runs diametrically opposite to the court’s reasoning.

Better Markets said the Howey test definition of an investment contract is broad, be the assets purchased outright or on an exchange. The nonprofit said this decision needs to be overturned if the SEC is to continue protecting and effectively regulating crypto markets.

Legal Precedents Contradict District Court’s Ruling

Better Markets cites the earlier decisions like SEC v. Terraform Labs and SEC v. Coinbase, which have established that the secondary market trading is still about the effort put in by the issuer. The brief criticized the district court’s focus on sophistication criteria among retail investors, as that does not represent any legitimate principle of law in conflict with the economic realities of today’s markets.

The organization underscores that Ripple actively targeted the retail investors through promotions, promising profits linked to the development of the ecosystem surrounding XRP. In failing to appreciate this, it says, the court missed addressing perhaps the most key investor protection goals underlying the securities laws.

Ripple Decision Risks Investor Harm

The district court’s decision could set a dangerous precedent, potentially allowing other crypto offerings to evade regulation by exploiting technicalities.

Better Markets warns this would harm crypto investors and disrupt broader securities markets. The brief urges the court to reverse the ruling to safeguard millions of everyday investors enticed by unregulated crypto schemes.

Ripple’s argument that secondary XRP sales differ from direct sales undermines the broad protective scope of the Howey test. Better Markets concludes that aligning the case with established legal principles is essential to uphold market transparency and fairness.

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Better Markets Backs SEC Appeal to Retain Jurisdiction Over XRP in Ripple Case

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  • Better Markets backs SEC, emphasizing XRP meets Howey Test for securities.
  • Ripple faces SEC appeal after 2023 ruling exempted XRP retail sales from securities laws.
  • SEC claims Ripple’s marketing created profit expectations, defining XRP as a security.

Washington-based non-profit Better Markets has submitted an amicus brief supporting the U.S. Securities and Exchange Commission (SEC) in its appeal against Ripple Labs. The filing emphasizes that Ripple’s XRP qualifies as a security under the Howey Test, countering the 2023 district court ruling that exempted XRP retail sales from securities laws. The non-profit also pointed out that the court misapplied legal standards, creating new risks for retail investors and undermining the regulatory framework.

The brief claims that XRP sales on trading platforms qualify as investment contracts under the Howey Test. Better Markets argued that investors’ anticipation of earnings from promotions makes it right to categorize Ripple as a security. Furthermore, the organization also pointed out that the court relied on the statutory definitions while ignoring the economics of the XRP transactions, especially the risk to the average individual investor.

Concerns Over Retail Investor Protections

Better Markets raised concerns about the impact that the court’s ruling would create risks for retail investors and that the decision resulted from an unregulated market. The brief disclosed that the rule discriminates against retail investors and leaves them vulnerable to market risks, including volatility, manipulation, and fraud.

The non-profit noted that Ripple marketed its XRP in a way that would lead retail investors to associate its price with the company’s operations. It also expressed concern that the district court’s ruling could increase the number of unregulated digital asset products available to retail investors without protections.

The brief also highlighted that retail investors contribute more to the cryptocurrency markets and called for proper regulation to reduce losses. Better Markets urged the appellate court to address these issues and deserve the ruling to align with the securities laws.

Ripple’s Legal Battle 

The legal battle between the SEC and Ripple Labs has been ongoing since December 2020 when the SEC accused Ripple of selling over $1.3 billion of XRP without registering it. As of 2023, a district court decided that XRP retail sales were not unlawful under securities laws, whereas institutional sales were found unlawful. The SEC filed a formal appeal of the retail sales decision in October 2024, and Better Markets became a party to the case in support of the regulatory role.

The decision in this appeal has major consequences for the cryptocurrency industry, as it may change the parameters of digital currencies under federal securities laws. Dennis Kelleher, the CEO of Better Markets, has been an outspoken opponent of the crypto industry, calling it a “lawless sector.” He stressed that the outcome of the appeal is important to safeguard investors and maintain transparency in the growing emerging digital asset sector.

Vanguard Takes Stand: No Spot Bitcoin ETFs, No Crypto Products

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Vanguard, a leading U.S. fund management company, has reinforced its anti-cryptocurrency position by announcing its refusal to allow users to purchase spot Bitcoin ETFs on its platform. According to a recent report from Axios, the firm will no longer accept the acquisition of cryptocurrency products, including Bitcoin futures ETFs

The move signifies the company’s steadfast commitment to distancing itself from the growing trend of cryptocurrency investments, even as other major players on Wall Street, such as BlackRock, Invesco, and Fidelity, are embracing the digital asset space with their own branded bitcoin ETFs.

A spokesperson for Vanguard stated:

In addition to spot Bitcoin ETFs not being available for purchase on the Vanguard platform, effective immediately, Vanguard will no longer accept the purchase of cryptocurrency products, including Bitcoin futures ETFs.

The spokesperson emphasized that this strategic shift allows Vanguard to concentrate on providing a core set of products and services in line with its commitment to serving the needs of long-term investors.

The company’s decision follows a recent social media uproar where purported customers expressed dissatisfaction with the unavailability of the newly introduced cryptocurrency offerings on the platform. The move is consistent with its historical investment philosophy, rooted in the principles of its late founder, Jack Bogle, which prioritize simple, low-cost investing over speculative ventures.

Better Markets Applauds Vanguard’s Integrity in Refusal

Dennis M. Kelleher, Co-founder, President, and CEO of Better Markets, commended Vanguard’s refusal to offer spot Bitcoin exchange-traded products, stating:

Bravo Vanguard! One of the biggest and most well-known fund issuers and money managers in the world is to be commended for putting its investors’ best interest first.

Kelleher characterized crypto as a “worthless, useless, speculative, volatile, and criminal-preferred financial product,” supporting the company’s perspective that it does not align with its focus on traditional asset classes like equities, bonds, and cash.

The Better Markets statement urged other financial firms to follow Vanguard’s lead, emphasizing the risks of integrating crypto into the core of traditional financial and banking systems and citing concerns about systemic crashes and bailouts. However, this decision stands out as a testament to its commitment to investor protection, market integrity, and financial stability in the face of a rapidly evolving financial landscape.

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