The Biden administration’s efforts to restrict cryptocurrency companies’ access to banking services have been dubbed Choke Point 2.0.

Operation Choke Point Background

Initiated by the Obama administration in 2013, Operation Choke Point aimed to combat fraud and illegal activities by cutting off criminals from the banking system. Financial institutions were pressured to sever ties with high-risk businesses in hopes of halting illicit operations. However, the program faced criticism for allegedly targeting legitimate businesses. The Department of Justice ended the program in August 2017, acknowledging that it was harming legitimate enterprises rather than curbing fraud.

What is Known About Choke Point 2.0

In early 2023, venture capitalist Nic Carter highlighted the resurgence of such tactics in what he termed Choke Point 2.0. The Biden administration has allegedly taken coordinated steps to isolate the crypto industry from the banking sector. This includes discouraging banks from engaging with crypto firms and making it difficult for crypto companies to secure banking licenses.

Key Features

Carter noted that banks interested in cryptocurrencies face significant challenges. Financial institutions label cryptocurrency as “toxic” and cite the risks associated with this asset class. Examples include Signature Bank reducing its crypto deposits, Metropolitan Commercial Bank closing its crypto department, and investigations into Silvergate’s dealings with Alameda Research. Binance also suspended U.S. dollar bank transfers for retail clients.

If regulators can cut off access to fiat money, they can marginalize the industry without direct regulation.

Choke Point 2.0 Chronology

Significant events in the timeline include:

  • Dec. 6, 2022: Senators criticized Silvergate for its services to FTX and Alameda.
  • Dec. 7, 2022: Signature Bank announced a reduction in crypto deposits.
  • Jan. 3, 2023: The Fed, FDIC, and OCC issued a statement discouraging banks from dealing with crypto.
  • Jan. 9, 2023: Metropolitan Commercial Bank shut down its crypto asset vertical.
  • Jan. 21, 2023: Binance announced transaction limitations with Signature Bank.
  • Jan. 27, 2023: The Federal Reserve rejected Custodia’s application to join the Federal Reserve System.
  • Feb. 2, 2023: The Justice Department investigated Silvergate’s dealings with FTX and Alameda.
  • Feb. 6, 2023: Binance suspended USD bank transfers for retail customers.
  • Feb. 7, 2023: The Fed’s statement was filed, turning it into a final rule.
  • March 2023: Silvergate Bank shut down due to systemic risks following the closure of Silicon Valley Bank.

Is the Crypto Industry Still Experiencing Operation Choke Point 2.0?

Operation Choke Point 2.0 continues to affect the crypto industry, with regulators striving to make it challenging to access crypto through traditional financial platforms. The U.S. Securities and Exchange Commission (SEC) has intensified its efforts to regulate crypto companies, exemplified by Staff Accounting Bulletin 121. This bulletin requires banks to reflect cryptocurrencies on their balance sheets, making custodial services expensive and limiting their scalability.

Since 2024, government officials have called for softer provisions, but President Biden vetoed changes to SAB 121, emphasizing consumer and investor protection. Meanwhile, the SEC has provided guidance on avoiding these requirements, allowing some banks to bypass regulations and protect clients’ assets in case of bankruptcy.

Should Operation Choke Point 2.0 Be Completed?

Experts argue that hindering the development of decentralized technologies in the U.S. undermines the nation’s leadership in technical innovation. Max Sultakov, CEO at Yona Network, criticized the hidden regulations that manipulate banking rules, highlighting the importance of decentralized and permissionless finance powered by blockchain technology.

Former U.S. President Donald Trump has also expressed opposition to Operation Choke Point 2.0, promising to end it if elected. He pledged to ensure a level playing field for Bitcoin and financial technology companies, and his remarks about firing SEC head Gary Gensler garnered significant support from the audience.

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