What is Operation Choke Point 2.0?

The cryptocurrency industry is facing a major challenge as a result of the recent closure of three of the largest crypto-friendly banks in the U.S. These closures have left many cryptocurrency firms struggling to find new banking partners, and some industry participants are concerned that this may be the result of a coordinated regulatory effort to unbank the industry.

The theory that the closures are part of a wider strategy to unbank the crypto industry is known as “Operation Choke Point 2.0.” This theory was first proposed by Nic Carter, a general partner at Castle Island Ventures, who argues that regulatory actions against Silvergate Bank, Silicon Valley Bank (SVB) and Signature Bank are part of a coordinated effort to weaponize the banking industry against unfavorable industries such as gun stores, payday lenders and tobacco stores.

Washington-based law firm Cooper & Kirk has supported Carter’s claims in a recent white paper. The law firm litigated the U.S. Justice Department’s original Operation Choke Point initiative that started in 2013 as a coordinated effort to weaponize the banking industry against unfavorable industries.

Adrienne Harris, superintendent of the New York Department of Financial Services, has dismissed the theory as “ludicrous,” but some industry participants are concerned about the impact of the regulatory crackdown on crypto.

Harris’ remarks came nearly a month after Signature Bank, the largest surviving crypto-focused bank in the U.S., was shut by regulators over what they called a “systemic bank failure,” a few days after the collapse of SVB and Silvergate.

“The shutdown of Signature Bank, despite its solvency and relatively low levels of unrealized losses, raises questions about the motivations behind the regulatory action. The decision to shut down the bank could be interpreted as a message to discourage people from participating in the crypto industry,” wrote Luke Lombe, a core developer at Spool, a decentralized finance application for yield generation.

The U.S. wing of Binance, the world’s largest crypto exchange, has struggled to find banking partners to serve as fiat on-ramps since the shutdown of Signature Bank. Some USD deposit services have been temporarily halted since April 2, due to Binance.US “transitioning to new banking and payment service providers.”

“Regulators don’t like crypto and even the word decentralization makes them nervous, however, they’re not stupid — they’ll know that no amount of opaque legalese and strongarming will make crypto go away,” Vadim Yarmak, the chief executive officer of blockchain marketing firm PRMR said. “The short-term goal is to keep crypto out of traditional banks so that that the idea of crypto doesn’t become normalized.”

The future of the cryptocurrency industry is uncertain in the wake of the recent regulatory crackdown. However, it is clear that the industry is facing a major challenge, and it remains to be seen how it will respond.