Treasury Department

US exploring ways to guarantee the country’s 18T of bank deposits: Report

The current deposit insurance cap under the FDIC is $250,000, but recent banking collapses have seen calls to increase that amount.

U.S. officials are reportedly studying ways to expand the current scope of deposit insurance that would guarantee all U.S. bank deposits should the current banking crisis worsen.

The current deposit insurance cap under the Federal Deposit Insurance Corporation stands at $250,000, however, following the collapse of several banks in March, there have been calls to increase that amount.

Organizations such as the Mid-Size Bank Coalition of America called on March 18 for the cap to be lifted for the next two years, citing a need to protect depositors and to stop capital being pulled from smaller banks for supposedly safer-looking heavyweights.

According to a March 21 Bloomberg report citing “people with knowledge of the talks,” Treasury Department staff members are currently discussing the possibility of the FDIC being able to expand the current deposit insurance beyond the max cap to cover all deposits. According to the FDIC, domestic U.S. bank deposits totaled $17.7 trillion as of December 31.

The move would ultimately hinge on what level of emergency authority federal regulators have and if the insurance cap can be increased without formal consent from Congress.

Bloomberg’s sources indicated, however, that U.S. authorities don’t deem such a drastic move necessary at the moment, as recent steps taken by financial regulators are likely to be sufficient.

As such, they stated that a potential strategy is being whipped up just in case the current situation gets worse.

In response to Silvergate, Signature Bank and Silicon Valley Bank going bust in recent weeks, the Federal Reserve rolled out the $25 billion Bank Term Funding Program (BTFP) on March 13, as the government pushed to stem any further contagion.

Related: UBS Group agrees to $3.25B ‘emergency rescue’ of Credit Suisse

Meanwhile, in a March 20 press briefing, White House Press Secretary Karine Jean-Pierre was specifically asked if the federal government was supportive of a push from small- and mid-size banks to expand FDIC insurance beyond $250,000.

But Jean-Pierrre was tight-lipped on the Biden Administration’s view, saying on that “our goal is to ensure the financial system is stable” and emphasizing that creating a fair playing field was the “focus of Treasury and the bank regulators.”

“And as you saw, due to our actions this week at the direction of the President, Americans should be confident of their deposits. We’ll be there when they — when they need them.”

“And — and so, again, that’s what our focus is going to be. We don’t have any new announcements at this time. But clearly, we want to make sure that our financial system is stable,” she added.

Treasury officials would have done more for national security by leaving Tornado Cash alone

Tornado Cash contributes to our national security interests more than it undermines them.

One of the most powerful moments in a new crypto user’s journey happens the first time they send a sizable amount of money to their private wallet. It’s an awe-inspiring, serious moment — and it’s a little scary to experience the power and personal responsibility of the technology firsthand with your own real money.

A second powerful moment occurs when the same user is introduced to a block explorer, looks up their address and sees that same transaction there on the blockchain for all to see.

There are competing visions of what Bitcoin (BTC), Ether (ETH) and other cryptocurrencies will achieve. They may be the future of gold, payments, currency or bank accounts. But no matter your crypto vision, none can work without achieving the same level of privacy enjoyed by cash or, at a minimum, credit cards. While credit card companies conduct unparalleled surveillance on our financial life, at least our transactions are not viewable on a public ledger.

There are a number of tools to achieve privacy available in crypto, from privacy coins to mixers and conjoining transactions on the Bitcoin blockchain. These tools are used by everyday users, and in some cases, they are used by bad actors — just like cash. Or to be more precise, crypto and crypto privacy tools are used by criminals with less frequency than cash.

The United States Treasury Department’s Office of Foreign Assets Control sanctioned one particular project, Tornado Cash, that was the most effective privacy tool on Ethereum. Much has been written about the sanction and the threat represented by sanctioning code as speech, and two lawsuits have been filed to push back against OFAC’s efforts.

What has been lost in the FTX drama over the last few weeks is the deft maneuvering that OFAC has engaged in to improve its strategic position in the litigation. On Nov. 8, OFAC “redesignated” Tornado Cash “on the basis of new information.”

Two significant legal challenges brought forward a few weeks prior that poked holes in OFAC’s designation are the likely source of the “new information.” OFAC can only sanction groups, not computer code, and OFAC seems to be pushing a novel theory in its second designation that the decentralized autonomous organization around Tornado Cash was part of a group, even though the DAO had no power to change the code since the admin key was burned.

Supporters of the designation argue it was overall a fair trade to achieve national security goals. The stated reason for the designation was that Tornado Cash “obfuscated the movement of over $455 million stolen in March 2022” by North Korean hackers.

But did it really? Privacy tools require a large anonymity set to work. That’s the only way that small transactions by ordinary users can hide in a large crowd. And it works only if privacy tools are used correctly, without privacy mistakes like making mirror transfers into and out of shielded assets within a short timeframe.

Related: My story of telling the SEC ‘I told you so’ on FTX

Consider that when North Korean hackers made that specific transfer, it represented 20% of the entire Tornado Cash pool. The sheer volume of ETH North Korea was trying to move through the Tornado Cash protocol meant that it wasn’t obtaining any meaningful privacy by using the tool. It evokes a comical vision of Godzilla trying to cover himself with a fig leaf.

The Treasury Department would have achieved more for national security by allowing North Korean hackers to maintain a false sense of confidence and continue using the tool while it surveilled their transactions using statistical tracing analysis. What OFAC achieved instead amounts to little more than national security theater.

Meanwhile, it has done real harm to the Ethereum blockchain. One example, as noted by Ethereum co-founder Vitalik Buterin, is that Tornado Cash anonymized donations to support Ukraine. If the Treasury Department’s sanction against Tornado Cash is allowed to stand, it can sanction anything from computer code and applications to specific assets.

Related: Coinbase is fighting back as the SEC closes in on Tornado Cash

Almost as if on cue, former Treasury official Juan Zarate argued in a recent interview that the Treasury Department should use the Patriot Act more “creatively” to sanction entire classes of assets in crypto. It’s a short step from there to sanctioning gold coins or other everyday assets.

Society doesn’t countenance the sanctioning of things merely because criminals happen to use them. Criminals drive on roads. They use tools available at the hardware store. They use these things in furtherance of their crimes.

If OFAC’s vague sanction of “Tornado Cash” is allowed to stand, it can sanction any protocol or asset in crypto. And that threatens to destroy any meaningful vision of crypto’s future.

J. W. Verret is an associate professor at the George Mason Law School. He is a practicing crypto forensic accountant and also practices securities law at Lawrence Law LLC. He is a member of the Financial Accounting Standards Board’s Advisory Council, a member of the Zcash Foundation’s board of directors, and a former member of the SEC Investor Advisory Committee. He also leads the Crypto Freedom Lab, a think tank fighting for policy change to preserve freedom and privacy for crypto developers and users.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

TORN price sinks 45% after U.S. Treasury sanctions Tornado Cash — Rebound ahead?

TORN is near a historically strong support range, eyeing a 75% rebound by September 2022.

Tornado Cash (TORN) has lost almost half its market valuation two days after being slapped with sanctions by the U.S. Treasury Department.

The department accused Tornado Cash, a crypto mixer platform, of laundering more than $7 billion in cryptocurrencies, including a stash of $455 million allegedly stolen by North Korea-based hackers.

Immediate reactions were followed by U.S.-based crypto companies, including Circle and Coinbase. In a controversial move, the popular crypto firms blocked the movements of their jointly-issued stablecoin USDC tied to Tornado Cash’s blacklisted smart contracts.

TORN price drops 45%

The news prompted traders to limit their exposure to TORN, Tornado Cash’s native token.

On the daily chart, TORN’s price has slipped by approximately 45% since the Justice Department’s notice about Tornado Cash, to reach $18.50 on Aug. 10. By contrast, the valuation of all the crypto assets had plunged merely 6% in the same timeframe.  

TORN/USD daily price chart. Source: TradingView

Interestingly, TORN’s selloff accompanied a spike in daily trading volumes, suggesting momentume.

TORN technicals suggest recovery

The downside move has pushed TORN price near a critical technical support.

Related: Anonymous user sends ETH from Tornado Cash to prominent figures following sanctions

TORN has been testing its $15–$18 range for a potential rebound due to its historical relevance as support. Notably, in January and June earlier this year, this level served as a springboard for TORN price to jump 275% and 100%, respectively.

TORN/USD three-day price chart. Source: TradingView

Therefore, a potential rebound move from the range could have TORN test $32.50 as its next upside target, which coincides with the 0.236 Fib line as shown above. In other words, a 75% recovery by September 2022

On the other hand, a breakdown below the support range sends TORN’s price to new record lows.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.