What is Operation Choke Point 2.0? Trump promises to end it

Key Takeaways

Federal regulators have been accused of blocking banking access to crypto companies in what is known 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 debate over Operation Choke Point 2.0 has heated up again as Trump prepares for a second term in office.

Crypto businesses that have long been under the shadow of this controversial program, as well as observers who are aware of the unfair targeting of the industry, are hopeful that Trump will take decisive steps to take apart

But what exactly is Operation Choke Point 2.0 and why do 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 seen as a successor to the original Operation Choke Point which was launched under the Obama administration in 2013 and ended by Trump in 2017.

The aim of these initiatives is to investigate banks and their relationships with certain high-risk businesses in an effort to combat fraud and money laundering. Both operations use regulatory pressure as a key tool to target abusive businesses.

If the first “choke” pressured banks to cut ties with payday lenders, gun dealers, as well as other unsavory businesses, Operation Choke Point 2.0 will reportedly use regulatory threats to forcing banks to end 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 have been 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) – on the existing operations of confirm early.

These groups are believed to have played their part in discouraging banks from providing services to crypto companies. But where is the smoke?

The alleged crackdown came to light after federal regulators a a joint statement in January 2023 warns banks about the risks of crypto assets. Around two months later, Silvergate Bank and Signature Bank, two major players in the crypto banking industry, experienced turmoil.

Even though Silvergate was connected to the failed crypto exchange FTX, it wasn't exactly the cause of the collapse. A big part of the problem was their own dangerous way of doing business.

Observers speculation that the unwritten rule allowed the bank to keep only 15% of the total deposits from crypto clients. Since their entire business was built on these crypto investments, this really hurt Silvergate especially when a major withdrawal hit.

Signature Bank was also closely associated with the crypto industry and experienced a bank run after the collapse of Silicon Valley Bank (SVB). The bank was eventually taken over by regulators although it was still financially sound at the time.

One of its board members, Barney Frank, an argument that this action was a clear message from regulators saying that they wanted to prevent banks from dealing with the crypto sector.

Between the release of the joint statement and the closure of the bank, Signature Bank told Binance that it would impose a new ban on transactions. Starting February 1, 2023, the bank would no longer support crypto transactions worth less than $100,000.

Banca Custodia also learned in early 2023 that its main account application was advised to be withdrawn by the Fed due to its focus on digital assets.

More confirmation

More banks with ties to the crypto industry are feeling the heat as they resist growing pressure to limit their services.

The Fed in August ordered Consumers 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 that aim to address “significant deficiencies” in the bank's risk management. and compliance practices.

Gemini's Tyler Winklevoss sees the activity as evidence that Operation Choke Point 2.0 is “fully engaged”.

Recently, several figures from the crypto industry have spoken about the ongoing banking efforts, saying that Operation Choke Point 2.0 is not just a theory.

Coinbase's Chief Legal Officer, Paul Grewal, claims that the company received “cease and desist letters” through Freedom of Information Act requests, indicating that the FDIC was actively urging banks to stop or avoid co-operation. related to crypto in 2022.

Re: the letters showing Operation Chokepoint 2.0 weren't just a crypto conspiracy theory. @FDICgov still hiding behind over-extensive edits. And they still haven't realized more than a fraction of them. But finally we got the stop letters: https://t.co/Me41BXpbdF…

— paulgrewal.eth (@iampaulgrewal) December 6, 2024

In a recent podcast appearance, Marc Andreessen mentioned knowing more than 30 tech founders who had been “debanked”, suggesting an ongoing campaign against crypto and tech companies under the current administration.

In addition, just this week, a new study reported by the Wall Street Journal revealed that around 120 crypto hedge funds reported problems accessing basic banking services in the past three years.

A narrow majority of the group said they were clearly told by banks that their relationship would be terminated, but the reasons given were often unclear or non-existent.

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 close 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 Bitcoin 2024 conference. He also vowed to fire SEC Chairman 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 the two officials, along with Senator Elizabeth Warren, as key figures behind Choke Point 2.0.