Key Takeaways
Federal regulators have been accused of restricting banking access for crypto firms in what is termed as Operation Choke Point 2.0, despite denials from the Biden administration. Trump has vowed to end the alleged Operation Choke Point 2.0 if elected president. The discussion surrounding Operation Choke Point 2.0 has heated up again as Trump prepares for a second term in office. Crypto businesses that have long been overshadowed by this controversial program, as well as observers aware of its unfair targeting of the industry, are hopeful that Trump will take decisive action to dismantle it. But what exactly is Operation Choke Point 2.0 and why many in the crypto sector want Trump to end it?
What is Operation Choke Point 2.0?
Operation Choke Point 2.0 is an alleged program initiated by the Biden administration and a group of US regulators to restrict the crypto industry’s access to the banking system. It is often perceived as a successor to the original Operation Choke Point launched under the Obama administration in 2013 and terminated by Trump in 2017. The objective of these initiatives is to investigate banks and their relationships with certain high-risk industries in a bid to combat fraud and money laundering. Both operations use regulatory pressure as a primary tool to target disfavored industries. If the first “choke” pressured banks to cut ties with payday lenders, firearms dealers, as well as other unfavorable businesses, Operation Choke Point 2.0 allegedly uses regulatory threats to coerce banks into terminating relationships with crypto businesses.
Is Choke Point 2.0 even real?
The current administration has denied the existence of Operation Choke Point 2.0, but critics argue that enforcement actions taken by various financial regulators—including the Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC)—have proven its existing operations. These agencies are believed to have played their part in discouraging banks from providing services to crypto firms. But where is the smoke? The alleged crackdown became visible after federal regulators issued a joint statement in January 2023 warning banks about crypto asset risks. Around two months later, Silvergate Bank and Signature Bank, two key players in the crypto banking industry, faced turmoil. Even though Silvergate was connected to the failed crypto exchange FTX, its downfall wasn’t just because of that. A big part of the problem was their own risky way of doing business. Observers speculated that there was the unwritten rule that allowed the bank to hold only 15% of the total deposits from crypto clients. Because their whole business was built on those crypto deposits, this essentially hurt Silvergate especially when massive withdrawals hit. Signature Bank was also closely linked to the crypto industry and experienced a bank run following the collapse of Silicon Valley Bank (SVB). The bank was eventually taken over by regulators even though it was still financially healthy at the time. One of its board members, Barney Frank, argued that this action was a clear message from regulators saying they wanted to discourage banks from dealing with the crypto sector. Between the issuance of the joint statement and the bank’s shutdown, Signature Bank reportedly informed Binance that it would implement a new restriction on transactions. Starting February 1, 2023, the bank would no longer support crypto transactions worth less than $100,000. Custodia Bank also learned in early 2023 that it was being advised to withdraw its application for a master account with the Fed due to its focus on digital assets.
More proof
More banks that have ties to the crypto industry are feeling the heat as they face increasing pressure to restrict their services. The Fed in August ordered Customers Bank, a known crypto-friendly bank, to notify the regulator 30 days in advance of any new crypto-related banking services, as part of an enforcement action aimed at addressing “significant deficiencies” in the bank’s risk management and compliance practices. The action is viewed by Gemini’s Tyler Winklevoss as evidence that Operation Choke Point 2.0 is “in full swing.” Recently, several figures from the crypto industry have spoken out about the ongoing debanking efforts, asserting that Operation Choke Point 2.0 is not just a theory. Coinbase Chief Legal Officer Paul Grewal claims the company obtained “pause letters” through Freedom of Information Act requests, showing the FDIC actively urged banks to halt or avoid crypto-related activities in 2022.
Re: the letters that show Operation Chokepoint 2.0 wasn’t just some crypto conspiracy theory. @FDICgov is still hiding behind way overbroad redactions. And they still haven’t produced more than a fraction of them. But we finally got the pause letters: https://t.co/Me41BXpbdF…
— paulgrewal.eth (@iampaulgrewal) December 6, 2024
In a recent podcast appearance, Marc Andreessen mentioned knowing over 30 tech founders who had been “debanked,” suggesting an ongoing campaign against crypto and tech companies under the current administration. Moreover, just this week, a new survey reported by the Wall Street Journal revealed that approximately 120 crypto hedge funds reported difficulties accessing basic banking services in the past three years. A narrow majority of the group reported that they were explicitly informed by banks that their relationships would be terminated, but the reasons provided were often unclear or nonexistent.
Trump’s position on Operation Choke Point 2.0
Trump previously promised to end Operation Choke Point 2.0 if elected. “As president, I will immediately shut down Operation Choke Point 2.0. They want to choke you out of business; we’re not going to let that happen,” Trump said at the 2024 Bitcoin conference. He also vowed to fire SEC Chair Gary Gensler on his first day in office. Gensler and FDIC Chairman Martin Gruenberg have announced their departures, effective January 20 and January 19, 2025, respectively. Venture capitalist Nic Carter identified both officials, along with Senator Elizabeth Warren, as key figures behind Choke Point 2.0.
i wont rest until every name on this graphic is scratched out! pic.twitter.com/24zR92G5Ks
— nic carter (@nic__carter) May 20, 2024
Just like Trump ended the original Operation Choke Point during his first term, there’s hope that he will dismantle its modernized version once he takes office.