Coinbase regulation VP says officials could do more to address 'chokepoint' rumors

Scott Bauguess is Coinbase's vice president for global regulatory policy and former deputy chief economist at the Securities and Exchange Commission. 

After a South by Southwest panel on crypto regulation, he took time to speak with The Block about the digital asset industry's relationship with banks and banking regulators in the context of this past week's headlines surrounding  Silvergate and Silicon Valley Bank. 

The interview has been lightly edited for clarity. 

What are your thoughts as to how the events of the past week or so are going to affect crypto’s access to the banking system in the U.S.?

Well, I would just say from Coinbase’s perspective, we’ve learned from history that you have to have a lot of bank redundancies, and so we have a lot of redundancies. And so when a bank goes down, we have provisions in place for us, this isn’t an issue. It would take a massive collapse for the system for it to affect us, and so we’re in a good position. 

May not be the case for other market participants, so we need to wait and see what happens for the crypto players, but it’s a pretty scary time I think for many participants.

There’s a comparison being made to Operation Chokepoint or people in the industry saying U.S. regulators are trying to cut off access for crypto to banks. What are your thoughts on that?

All of our relationships are in good standing. We’ve heard ‘Operation Chokepoint 2.0’. 

There are legitimate concerns about the industry, and government, and that’s healthy. You know, I hope there’s not a ‘Chokepoint 2.0’. I think people have different perspectives on that. And I think the issues right now are broader than crypto, and it’s banking in general. 

My prediction is people are going to be talking about the resiliency of the banking system, and not crypto’s part in it, but crypto, obviously, is very important. It depends on banking. So hopefully we get past this ‘Chokepoint 2.0’ discussion and get more toward how do we get a resilient banking system? How do we make sure that legitimate crypto players can have the accounts that they need to be able to operate legitimately? Government oftentimes goes through a therapeutic process where they have to say a lot of things and have discussions before they land on the right answer. I’m pretty optimistic that we’ll land in the right place. 

Do you think that the ‘Chokepoint 2.0’ talking point is helpful or counterproductive? 

I’m not a politician. It gets a lot of attention. It gets people thinking about it. 

I think there are a lot of legitimate people in government who are asking really good questions, not realizing that it might come across as ‘Chokepoint 2.0.’ So probably the vast majority of it is, you know, not a conspiracy. But you have to be careful when you’re a regulator. People listen to every single word, and read every little letter, and they chew on it over and over and over again and talk to their outside counsels and…it’s healthy to think of worst case scenarios. We think of worst case scenarios. You often equate that to conspiracy, and that’s not a good outcome. 

So more clarity from bank regulators, from government that it’s not ‘2.0,’ I think would be good for everybody. 

Less crypto Twitter poring over Fed bulletins to banks?

Yes. I mean, crypto accelerates information transfer at lightspeed, and it doesn’t always do it in a way that’s conducive to a healthy way of looking at situations. So I think it’d be great to have more voice, more airtime by government regulators on the issues and that will fill the void of people thinking worst-case scenarios.