David Z. Morris is a longtime technology and finance reporter, and the creator of Dark Markets, a newsletter about cryptocurrency, financial true crime, and systemic corruption.

Cryptocurrency is becoming a major issue in a U.S. presidential campaign for the first time, as Donald Trump and Joe Biden square off ahead of the general election in November. But what looks like a domestic political misstep by Democrats may really be about preserving America’s global banking hegemony.

The stakes are rapidly heightening. Trump made pro-crypto comments at Mar-A-Lago last week, seeming to reverse his former stance that bitcoin is “a scam against the dollar.” A recent Harris poll sponsored by Digital Currency Group found that  20% of U.S. voters consider crypto a key issue. Just this morning, Bitcoin Magazine reported comments from longtime Democratic funder Marc Cuban, who said that the Biden administration’s anti-crypto stance could cost Biden the election against Trump.

Read more: 2024 Is the Biggest Global Election Year Ever, So What Does That Mean for Crypto?

The immediate cause for the spike in crypto-politics is the Biden administration’s declared intent to veto a rollback of the SEC’s Staff Accounting Bulletin 121 (SAB 121). The accounting guidance requires banks to treat digital assets custodied on behalf of customers as if they were the banks’ own assets, which in turn requires them to hold 5% of the amount in added reserve capital — despite not being able to use the assets, since they belong to customers. (Major hat tip to Castle Island Ventures’ Matt Walsh, who was early to sounding the SAB 121 alarm.)

This makes crypto custody economically non-viable for financial institutions, and amounts to a back-door ban on crypto custody, imposed without any legal or administrative process. SAB 121 is “guidance,” rather than a formal regulatory “rule,” and so did not go through the standard public comment and review process for new agency regulations. 

Read more: Crypto Owners Have Flipped From Biden to Trump Ahead of November Elections, Paradigm Poll Finds

As Rep. Tom Emmer (R) has argued, the rule accomplishes the opposite of the SEC’s legislated goal as an agency, making the digital asset market more concentrated, less fair, and less safe. The rule’s effects include pushing crypto custody services to less established and riskier players, including those that are offshore — the kinds of custodians who could easily turn out to be the next FTX.

“Chokepoint 2.0” and Democratic Censorship

It doesn’t take much imagination to grasp that making crypto less safe is in fact the goal of Gensler’s guidance, which amounts to another pillar in the Biden administration’s continuing effort, dubbed “Chokepoint 2.0” by critics, to prevent crypto from any integration with the U.S. financial system – without the clear legal authority to pursue that agenda. That effort has included Gensler’s now-failed effort to block a bitcoin ETF, as well as a series of troubled enforcement actions, including those targeting reputable trading venues such as Coinbase.

The “Chokepoint 2.0” nickname is a skeleton key to the partisan politics in play here. The original Operation Chokepoint was an effort by the Obama administration to pressure banks against dealing with industries including gun manufacturers and payday lenders, essentially by threatening greater scrutiny of banks that dealt with those industries.

Read more: Donald Trump Promises to Never Allow CBDCs if Elected President

Even if you respect the effort’s goal of shrinking socially undesirable industries, it was a badly flawed idea. Operation Chokepoint was described as an abuse of agency power by the House Oversight Committee, and discontinued by the FDIC in 2015. The FDIC settled multiple lawsuits as a result of the program, and new restrictions were imposed on its powers.

Notably, the original Obama-era Chokepoint was substantially architected by Martin Greunberg, who as current head of the FDIC, is also playing a major role in Chokepoint 2.0.

The Global Politics of Weaponized Finance

The use of banking levers to attack undesirable but legal industries reflects two distinct factors in U.S. politics. Democrats seem more willing than Republicans to use banks as a cudgel against domestic undesirables, and crypto in particular. But in recent years, the U.S. as a whole has dramatically ramped up the use of the financial system as a weapon against global adversaries — including under the Trump administration. At both levels, these policies seek short-term tactical gains, at the risk of uncertain and likely damaging long-term strategic losses.

Not surprisingly, the SEC and Biden administration’s abuse of financial regulation to target legal American businesses has primarily attracted criticism from the conservative right. These can be described as broadly “pro freedom” voters who don’t like the idea of being told what to do, especially by unelected regulators.

But as Nic Carter of Castle Island has pointed out, it’s unclear who’s on the other side of that equation – there is no major, passionate constituency for anti-crypto policy. Of the 19% of Americans who own crypto, party affiliation is close to evenly split. Twenty-one Democratic lawmakers, meanwhile, joined Republicans in supporting the House bill to overturn SAB 121.

One possible explanation for the Biden administration’s willingness to pick this losing domestic fight is that their real focus is on the threat that crypto poses to America’s global banking hegemony. This far-reaching power, such as U.S. surveillance of the supposedly neutral SWIFT interbank system, was explored recently by political scientists Henry Farrell and Abraham Newman in their book Underground Empire: How American Weaponized the World Economy

Farrell and Newman describe how almost all global financial transactions at some point pass through US banks and rely on the US dollar. That gives America immense control over those transactions — and it has been using that power much more aggressively in recent years, such as with the dramatic decision to freeze Russian foreign reserves in response to the invasion of Ukraine.

But Farrell and Newman point out that this is a short-term tactic: the more the U.S. exercises its control of the financial system to punish its enemies, the more motivation those enemies have to establish new payment channels that don’t touch U.S. infrastructure and control. Efforts by BRICs nations to build alternative trade payment rails have been halting, but persistent.

But the real nightmare scenario for U.S. financial power isn’t China settling oil trades in RMB — it’s the growth of viable crypto infrastructure that makes uncensorable payments universally accessible and appealing worldwide. That would unleash transformative growth by removing economic barriers, but it would also undermine a major pillar of American strength.

Perhaps Biden’s current politicizing of finance would be more palatable to American voters if the administration were willing to foreground this set of motives — i.e., if they could pitch their crypto crackdown not as an attack on Americans’ freedom, but as a preemptive move to constrain enemies including Russia and China.

But here as so often, such long-term international maneuvering has to be conducted under obscuring cover. It would be unacceptably confrontational if Biden publicly declared something to the effect of “America controls all the money in the world, we know it, and we’d like to keep it that way, so we’re anti-crypto.” If anything, it would probably nudge more of America’s strategic opponents to explore crypto to circumvent U.S. power.

And so US voters, including many liberals, are left pondering what looks a lot like domestic financial authoritarianism from the Biden administration. For the 20% of American voters who consider crypto policy important, that will be about as appealing as a dog-faced pony soldier.