Blockchain Bites: OCC's Head Stepping Down, Anchorage to Become First National 'Digital Asset Bank'

Brian Brooks finalized the controversial Fair Access to Banking rule in what could be his last act in office.

AccessTimeIconJan 14, 2021 at 6:21 p.m. UTC
Updated Sep 14, 2021 at 10:56 a.m. UTC
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Bitcoin is booming again as crypto-bull Brian Brooks pushes through his "open access" banking rules before stepping down as the top U.S.  banking regulator.

Top shelf

Going public?
The Winklevoss twins are considering taking Gemini Trust, the cryptocurrency exchange and custodian founded in 2014, public, according to a Bloomberg interview. “We are definitely considering it and making sure that we have that option. We are watching the market and we are also having internal discussions on whether it makes sense,” Cameron Winklevoss said. The firm released the Gemini Credit Card offering cryptocurrency rewards today.

Race for adoption
Central bank digital currencies (CBDCs) are lagging behind in crypto adoption, according to a new research note from the Australian investment bank Macquarie. “It is still unclear how entrenched private cryptos will become before CBDCs become a viable alternative for more efficient transactions,” with central banks at risk of losing control over the monetary system if so. While crypto is growing more popular, there are serious roadblocks to hyperbitcoinization – like brokerages running out of BTC and ex-Ripple CTOs losing their keys

Security measures
Grayscale Investments, the world’s largest digital currency asset manager, announced it has begun dissolution of its $19.2 million Grayscale XRP Trust, the latest step to minimize risk by distancing itself from XRP. The U.S. Securities and Exchange Commission is suing Ripple Labs for unregistered sales of XRP. Grayscale, owned by CoinDesk parent Digital Currency Group, had already removed XRP from its large-cap crypto fund. Meanwhile, Japan’s top financial regulator has said XRP is a is a crypto asset, not necessarily a security, under state law.

Quick bites

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Market intel

Trading hall of fame
On Oct. 30, someone (a single trader or small group) bought 16,000 contracts of Jan. 29 expiry call options at the $36,000 strike for 0.003 bitcoin per contract, according to data shared by Deribit. The initial investment or total purchase cost was 48 BTC, or roughly $638,400 as per bitcoin’s price back then. Omkar Godbole tells the story of this legendary trade.

At stake

Finance, censorship and Brooks
Acting Comptroller of the Currency Brian Brooks is set to step down today, ending a brief though impactful stint at the U.S.’ top banking regulator.

Brooks, who came to the Office of the Comptroller of the Currency by way of Coinbase and Fannie Mae, has pushed for greater flexibility and amiability between the banking sector and crypto – including issuing several interpretative letters saying federally regulated banks can custody crypto, process stablecoin transactions and serve as nodes in a blockchain network. 

As part of his mandate, Brooks also attempted to create a more “open” financial system by preventing banks from withholding services from “high-risk” businesses, like those in culturally sensitive industries such as tobacco, guns and fracking, as well as financially dubious firms like payday lenders. 

Open for a 45-day comment period, Brooks finalized the rule today in what some are calling 11th-hour decision-making. 

In November, Brooks and OCC Chief Economist Charles Calamoris proposed a rule that said banks should judge prospective clients based only on specific credit and operational criteria. This, the regulators wrote, would prevent “politically driven discrimination.” 

Brooks hasn’t given up the theme. “We live in a world where not only information but also money might be controlled by a handful of elites who might not like the way that any one of us thinks [about an issue],” Brooks said yesterday at a livestreamed Elliptic event. 

The outgoing OCC chief was speaking obliquely about financial firms like Shopify, Stripe and Deutsche Bank cutting ties with outgoing President Donald Trump in the wake of the Jan. 6 Capital riot that left five dead and interrupted the congressional certification of the presidential election results. 

“Everything is at risk” if financial technology is politicized, Brooks said. 

The trouble is, as J.P. Koning noted in a CoinDesk column in December, everything is already politicized. Responding to Brooks’ proposal to foster a politically neutral financial system, Koning wrote:

“In banking, loans are the fodder for creating safe deposits. So if a bank wants to attract modern consumers by setting up a clean supply chain (aka fair trade bank account) that means pruning source material for deposits, say coal miner loans.”

Banks are private institutions that have the right to make tough calls about who to serve and how to curate the types of products they have on offer, Koning argues. While some people see the rise of "woke capitalism" as a form of social coercion, it’s anything but.

No one compels the creation of cruelty-free T-shirts anymore than bonds definitely not backed by blood money. If there is a market for it, these non-neutral, inherently political products will arise, the argument goes. Further, attempts from regulators like Brooks to foist neutrality on the system – thereby preventing banks from cutting ties with dubious businesses for any number of reasons – is a bridge too far.

“The rule lacks both logic and legal basis, it ignores basic facts about how banking works and it will undermine the safety and soundness of the banks,” BPI President Greg Baer said in a Thursday statement responding to the formalized rule. 

It’s for similar reasons that Twitter’s decision to banish Trump from its internet fiefdom is an act of free speech, rather than censorship.  

Nic Carter, partner at Castle Island Ventures, CoinDesk columnist and public intellectual, calls this rhetorical technique the “private company fallacy.” While businesses are free to curate, this “implies a kind of anarcho-capitalist paradise, where firms are sovereign and the sole masters of their own destinies,” he wrote in a recent CoinDesk op-ed.

In reality, Carter argues, companies are enmeshed in a public-private network. Corporate executives filter in and out of public office (like Brooks!) and most industries are protected by regulations crafted with direct input from the private sector. 

“Banks are demonstrably not private companies; they are better understood as public-private partnerships, being granted the ability to create money in exchange for heavy regulation,” Carter wrote. 

Wherever you may draw the line, Brooks “open access” rule is reportedly likely to be overturned. Bloomberg reports banks are “fuming” at the last-minute act, and that several are already planning lawsuits. 

In fact, much of Brooks’ legacy is in danger of being overturned. There’s nothing binding about interpretative letters – like the ones allowing banks to custody crypto or bank stablecoin clients. And even if it were, industry commenters have cast doubt that any banks would jump at the opportunities presented

What this means for Anchorage’s conditional approval for a national trust charter – announced yesterday, setting it up as the first “digital asset bank” to be allowed to operate across the U.S. – is unknown. 

To be sure,  Brooks is thinking far ahead into the future, when banks will be self-driving bits of code.

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