Choke Point 2.0: Fact or fiction, crypto banking access set to change

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Crypto bros’ claims of an all-out war on their banking access don’t survive close inspection, but the sector’s feigned martyrdom is nonetheless paying off bigly.

Tech investor Marc Andreessen, co-founder of the Andreessen Horowitz (a16z) venture capital group, made headlines last month when he told podcaster Joe Rogan that he knew of 30 tech founders who’d been improperly ‘debanked’ by United States President Joe Biden and his anti-crypto administration.

This alleged campaign has attained mythic status within crypto bro circles as ‘Choke Point 2.0,’ a tech-focused successor to the original Operation Choke Point. That operation was launched under President Barack Obama’s Department of Justice (DOJ) to target sectors with a high propensity for fraud and money laundering.

a16z followed up their co-founder’s claims with a December 6 blog post titled Debanking: What you need to know. The post argued that debanking was “a tool or weapon systematically wielded by specific political actors/agencies against private individuals or industries without due process.” The post cited “reports of regulatory authorities unlawfully wielding their power by placing undue influence on banks to drop clients in certain industries.”

Far from a simple desire to minimize fraud and money laundering, a16z claims the feds were using debanking as “a partisan tool to kill legal businesses for political reasons.” This is an “un-American” practice that is “anti-innovation when indiscriminately aimed at emerging technologies.” (Points for the first company in a16z’s crypto portfolio to launch a token called MARTYRDUMB.)

This persecution perspective got a boost this week from Eric Trump, who told a BTC conference in Abu Dhabi that the traditional financial system had been ‘weaponized’ against the Trump Organization and then-President Donald Trump following the January 6, 2021 attack on the U.S. Capitol in Washington, D.C., Eric claimed that if it wasn’t for his family being shunned by traditional financial institutions, “I don’t think my eyes would have been as open to the crypto industry.”

There’s little fear of a Choke Point resurgence under Trump’s second term as president, as he’s stacking his Cabinet with pro-crypto figures and installing the same at key regulatory agencies. This week, Bloomberg reported that Trump’s pick to head the Commodity Futures Trading Commission (CFTC)—which, under proposed legislation, would take the lead in overseeing digital assets—could be none other than Brian Quintenz, a former CFTC commissioner who currently serves as head of policy at (ahem) a16z.

In the meantime, let’s tuck into the conspiracy theories to see how much meat might be on these bones.

The non-smoking gun

The Coinbase (NASDAQ: COIN) exchange has been filing Freedom of Information Act (FOIA) requests to obtain “all documents and/or communications” between certain federal agencies regarding any efforts to restrain “deposits from digital asset companies at depository institutions,” including Signature Bank, Customers Bank, Cross River Bank, Western Alliance Bank, and Silvergate Bank.”

On December 6, Coinbase’s chief legal officer Paul Grewal revealed the fruits of these FOIA requests, which he claimed was proof that Choke Point 2.0 “wasn’t just some crypto conspiracy theory.” The heavily redacted documents—spanning March to October 2022—obscure both the names of the financial institutions contacted by the Federal Deposit Insurance Corporation (FDIC) and the “crypto-related” financial products/services these banks were offering or planned to offer to clients.

In March 2022, the FDIC did indeed start asking banks to “pause, or not expand, planned or ongoing crypto-related activities.” It should be noted that this timeline coincided with the fiat price of prominent tokens hitting what were then all-time highs, followed by a string of high-profile insolvencies and bankruptcies that would have almost certainly impoverished many more Americans had the FDIC not intervened when it did.

But the non-redacted portions of the FOIA docs are pretty anodyne, with the FDIC simply expressing concern that the crypto services/products the banks were either offering or were considering offering hadn’t been properly vetted by federal regulators. As such, the FDIC requested more information from the banks, while “respectfully” asking them to “refrain from providing” said products/services in the interim.

The FDIC said it would notify banks at a later date once it had made a determination regarding the wisdom of continuing to allow crypto firms to access FDIC-supervised institutions. The FDIC’s Office of Inspector General (OIG) later chided the FDIC for failing to establish a specific time period in which to assess those risks.

The crypto sector reacted triumphally to the documents, claiming they confirmed their tallest tales about the feds slapping a big bullseye on their backs. In reality, what it really exposed was crypto’s sense of entitlement. As always, crypto’s default position is that no rules govern its actions, and the feds are just giant spoilsports restraining crypto’s freedumb.

Hell, Coinbase CEO Brian Armstrong has suggested that anti-money laundering (AML) rules are a waste of time and has not so subtly hinted that Elon Musk’s non-departmental Department of Government Efficiency (D.O.G.E.) might help him out in this regard.

It’s worth noting that Coinbase isn’t pressing the feds for their communications with Silicon Valley Bank (SVB), which collapsed in March 2023. SVB’s demise—which was sparked not by some federal crackdown but by tech VC’s mass-withdrawing their deposits over a 24-hour period—nearly led to the demise of Circle, the issuer of the USDC stablecoin via a partnership with Coinbase. Having lost $3.3 billion in cash deposits held with SVB, Circle/Coinbase were only saved from insolvency by a bailout from—wait for it—the FDIC.

But relax, everyone, the Wall Street Journal (WSJ) just reported that Trump’s transition team—including Musk’s D.O.G.E. squad—have been sounding out the possibility of abolishing the FDIC and giving the job of insuring bank deposits to the Treasury Department.

Bros smell deep-state blood

While the FDIC may be living on borrowed time, we have by no means heard the end of this saga. Grewal said Coinbase would now press for unredacted versions of the FDIC letters to understand more about the government’s reasoning.

Andreessen’s original comments also sparked interest on Capitol Hill, as a bevy of pols saw ways to ingratiate themselves with the incoming pro-crypto Trump administration. On Dec. 1, Rep. Ritchie Torres (D-NY), a member of the House Financial Services Committee, tweeted that the government’s “unfettered powers of de-banking represents an insidious threat to civil liberties in America.” Torres added that Andreessen had raised “a real issue that transcends partisanship.”

Rep. French Hill (R-AR), the Committee’s current vice-chair and a noted crypto supporter, stated during a subsequent hearing that the committee “is going to take a strong position” on banking access going forward. Hill said, “we have the documents. We’re reviewing. We’re going to continue that review through the end of this Congress and into the next Congress.” Hill, himself a former banker, will have all the power he needs to carry out that vow, as he was named the new chair of the Committee on December 12.

Sen. Tim Scott (R-SC), who will chair the Senate Banking Committee come January, offered similar sentiments in a hearing on December 11, saying banks should be ashamed for “weaponizing their power” and “bending to the powerful here in Washington.” (Kinda like how they’ll be bending to Scott’s will come January.)

David Sacks, who Donald Trump appointed last week as the White House’s first AI & Crypto Czar, tweeted that there were “too many stories of people being hurt by Operation Choke Point 2.0. It needs to be looked at.”

On December 9, Securities and Exchange Commission (SEC) Commissioner Hester’ Crypto Mom’ Peirce told Fox Business that the focus going forward would be to “stop this approach of trying to prevent crypto from getting access to the services that it needs—custody, for example—to move forward … Stop the Choke Point aspect of government regulation.”

Fair access

On December 4, Politico reported that Republicans were planning a fresh push to enshrine ‘fair access’ regulations governing banks’ ability to decline to serve certain customers. The concept first took root in the waning days of the first Trump term but met pushback from—surprise!—the banks, who didn’t like the idea of not being able to turn away sketchy customers.

The original ‘fair access’ push in 2019 came from the Office of the Comptroller of the Currency (OCC), which was led at the time by Brian Brooks. (After leaving government in January 2021, Brooks spent about an hour running Binance.US, the Binance exchange’s U.S.-facing site.) Brooks told Politico that he saw the new Congress acting on the fair access rules “right away—as literally a January priority, not like a 100 days priority.”

Not everyone is buying the urgency of this push, particularly given the expected easing of the regulatory guardrails that the second Trump term will bring. Dennis Kelleher, co-founder of the financial watchdog group Better Markets, told Politico that Andreessen’s viral comments were “typical baseless billionaire claims.” Kelleher warned that the fair access plan could well be “used against the banking and financial industry in a way that will not only harm investors and markets, but undermine financial stability.”

What could possibly go wrong?

Left unsaid amidst all the Choke Point self-pity parties is the concern that offering ‘crypto’ greater access to and integration with traditional financial institutions could mean a far wider economic impact should another wave of fraud-induced implosions occur.

The ‘crypto winter’ of 2022 was largely contained to the crypto platforms themselves and a handful of crypto-focused banks. In a scenario in which banks were more seamlessly intertwined with crypto operators, another wave of bankruptcies—or just the popping of the current fiat value bubble—would mean far greater damage for a great many more people.

And make no mistake. Wall Street types are already anticipating the prospect of a loosened regulatory environment that might allow them to create ever more exotic financial ‘instruments’ based on digital assets that could make Do Kwon’s ‘algorithmic stablecoin’ debacle look quaint by comparison.

There was a similar warning in a 23,000-word essay posted by former Stripe exec Patrick McKenzie on December 9 called Debanking (and Debunking?). McKenzie flagged one of the main goals of all this baying for bankers’ blood thusly: “Crypto wants permissive guidance about novel crypto-adjacent banking products.”

McKenzie’s article is worth your while, but if you don’t have the time to wade through the whole thing, he tweeted a summary that included this nugget: “Choke Point 2.0 is an advocacy term designed to attach the name of outrageous abuse of authority to anything crypto advocates want to discredit.”

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