For years, the crypto industry claimed there was a coordinated extra-legal effort to cut crypto off from the banking system. The media called it a conspiracy. We now call it Operation Chokepoint 2.0.
A new report from the House Committee on Financial Services confirms many of those things we in crypto already knew. There was, in fact, a conspiracy to debank us. We're gonna explain it.
[upbeat music] The first time we heard this phrase, Operation Chokepoint 2.0, was what?
Like, twenty twenty-three, I think, when Nick Carter published some, uh, exposés on this, and a lot of it was, like, conversations he'd been having with some of their LP-- with some of their clients and investment companies.
And the thing is, like, when he published this, everyone in our industry was like, "Oh yeah, this makes sense. This has been happening. There has been debanking."
We couldn't really point to why, but basically every few months, like, new drips come out and confirm this, and this is kind of, I would say, like, the capstone report, Colin.
Is, like, this is a formal report, again, kind of from, like, a GOP-driven committee, but this is an actual real report with, like, the formal documentation of what is, what is a, what I would call a conspiracy.
It's Operation Chokepoint 2.0, so I ask you, Colin, what was 1.0?
Operation Chokepoint 1.0 was an Obama-era mandate where the Obama administration's agencies sought to systematically sever certain industries and businesses from the banking system.
The ones that were targeted were coin dealers, ammunitions and guns brokers and dealers, I believe the marijuana industry, and some of the adult entertainment industry. People in those industries were also targeted.
And it seems like Chokepoint 2.0 is kind of the revival of this towards a completely different industry, or rather two industries, the crypto industry and some of its tech-adjacent part-partners, right?
You know, Marc Andreessen was on Joe Rogan Experience before the election talking about the debanking and how it really spread into crypto and into a bunch of different tech-adjacent fields.
And just a few words on how this story was broken.
I think, number one, no one outside of Bitcoin or crypto is going to take an industry proponent and an industry professional like Nick Carter seriously when he writes about this, which I think is, you know, maybe from a first-principle perspective, okay, it makes sense why people think that.
But if you actually think deeper about the problem here, you need to ask yourselves why Nick Carter was in the position to break the story in the first place, and I think the reason for this is, my gut, is he's friends with a lot of the people who were affected.
They were going to talk to him about this off the record or, or feel like their confidentiality was going to be actually at, you know, um, adhered to, and, and Nick was actually going to respect that when releasing the story.
They're not gonna go to a finance journalist for this.
Number one, it doesn't really fit a lot of narratives against crypto, and they would say, "Well, if the government's saying there's fraud, then that's the whole story. There's-- Then you shouldn't be banked," right?
Um, whereas with someone like Nick, who's actually knows these people, knows how the plumbing works, has interacted, maybe even had some problems himself, right? He was kind of well-positioned to break this.
And I think when you look at how it was broken and now what's coming out, um, now, I mean, Pirate Wires is an alt media.
Um, it d-definitely trad media, and people who read trad media would not look at it as a single source of truth.
But chalk one up again for the conspiracy theorists because this was a hundred percent happening, and now we have the receipts for it.
And I think that's probably the most interesting part of this, Charlie, is we can look at, like, date by date, the memos and the actions that were taken by the SEC, the FDIC, um, the OCC, and all of these different agencies to try to basically completely choke out banking, uh, relationships for the crypto industry.
Yeah.
And I will actually, uh, I tweeted about this right before we recorded it, and I got a little bit of chatter, and I'll actually highlight a couple tweets 'cause I think it'll help us get in front of a couple points early.
So [clears throat] um, there's a, a guy named Akeem Warr. He's a very good critic in Bitcoin. Uh, give or take some things he says, but he's a good critic. And he says, "I mean, what is this, though?
Like, imagine if Dems take over the House this year and write a report saying that Trump uses power to drive woke ideology out of universities. Is that profound?" I'm like, so, uh, I wouldn't be surprised to hear that.
Um, we would be in-- It would be a disagreement over, like, ideologically should he or shouldn't he, but I wouldn't be surprised, like, to hear that.
I'd be like, ah, Trump's kind of like, he's a strong man and he, uh, he, like, very much plays his sides. The thing is, I don't think many people would say that he wouldn't do that.
I-- With the, with the OCP 2.0, it's like we felt like literal conspiracy theorists were even saying it's happening. And then [clears throat] um, another one, which is,
I said, "So conspir-- So this would be a conspiracy in the sense that there were people having off-the-record conversations and coordinating efforts to harm the industry, not just relying on, like, policy or enacting policy that we disagree with."
And I would say yes. So this is both, like, a coordinated shadow effort to debank, um, despite the industry actually being compliant or at least attempting to be compliant.
'Cause it was really, really murky exactly, uh, how they designed this to provide an, an unending maze towards compliance without actually creating regulations or any kind of MO.
And I say, like, it would be better if, um, I would consider it more fair at least, or intellectually honest, if there were, say, uh, an agreement at the federal level to say, "We want-- We do not want the crypto industry here, so therefore we're going to make it impossible to be here," as opposed to not saying it and quietly debanking people and making them feel crazy.
So-I- We have a timeline. Yeah, and- And, yeah. Sorry, I just, I wanna highlight that last point. Like, the main takeaway when you read this document is that
ultimately there was this regulatory carousel that you could never get off with the Biden administration, where the Biden administration and its agencies were basically saying crypto is a huge risk, but did nothing to provide c-clear regulations or steps that financial institutions could take to mitigate those risks.
So it's kinda like saying, "Hey, this business that you're engaged in is a risk to your, to your clients and your shareholders."
Okay, what do we need to do outside of what we're already doing, which you said we need to be doing, and we've agreed to that? What else do we need to do? Uh, no comment, right?
I mean, there were multiple times where the FDIC and other agencies said, "You need to tell us before you deal with crypto clients. You need to get approval."
Banks would, would, would apply for that approval, and they would hear nothing back.
So with regards to the timeline, I think the where to start, because this is the domino that really pushed, um, th-that pushed the crypto industry into a corner and led to several bank failures, and that was starting with the office of the contro- or excuse me,
starting with the FDIC, the Federal Deposit Insurance Corporation, sending, uh, these letters to, uh, crypto companies. Um, or, uh, sorry, Damian, we're all over the place. Cut that. I'm trying to get my, uh...
Here we go. Um, the action seems to have started with the FDIC sending these pause letters to 24 or so financial institutions.
And what these pause letters said, this campaign took place between 2022 and 2023, is it ordered banks to delay or stop crypto-related services, uh, wait for the FDIC review for those services and those accounts before processing funds in those accounts.
It required dozens of written responses back and forth about this whole rigmarole.
Um, they were, banks were required to unearth a l- like mountains of legal documents and financial documents, and it also included in-person supervisory visits.
The reason why I'm starting here, um, and the document might as, might well draw a clear thread reading this. I didn't see any direct quotes.
But if you remember, as we've covered this on the Writers Room in the past, there were three bank failures that were more or less forced failures because of these banking restrictions with Operation Choke Point 2.0 in March of 2022.
Those bank failures were Silvergate, uh, Signature- Yes... and Silicon Valley Bank. So just for the quick timeline, on March 8th, 2023, Si- S- uh, Silvergate announces voluntary liquidation of its assets.
March 10th, 2023, Silicon Valley Bank collapses and its funds are seized. March 12th, 2023, um, Signature Bank is shut down by regulators.
These banking failures were basically a domino effect, ca- a cascading effect, because a lot of these banks had, um, accounts with th- these banks had accounts with each other, and they dealt in the same industry.
They mostly had crypto clients.
Um, I, I know companies that, a lot of crypto companies banked with Silicon Valley Bank, and, um, you know, m-many people at our industry were scrambling to figure out how to fill payroll in this time.
And there's this one quote here that I just wanna highlight from Fred Thiel, um, from his- Fred Thiel, the CEO of Marathon Digital, the largest miner, depending on the time, based on hash rate.
And so h- this is from Fred Thiel's testimony during the House committee meetings, uh, where a lot of this was brought to light and that this report, uh, bases a lot of its, uh, testimony on, says, quote here from Fred Thiel, "We banked with Signature, and when the FDIC shut down, uh, shut them down and Flagstar took over the accounts, none of the crypto accounts were allowed to be a part of those assets acquired, and we were forced to immediately seek accounts with other banks.
We were able to open an account with another bank, deposited $70 million after going through the approval process, and six days later we were told we had to shut down the account because our bank no longer will bank, because the bank will no longer bank crypto companies.
We were basically given a policy decision by the bank that they would no longer service crypto companies, period, and we were asked to withdraw our money in what I was think 24, 72 hours." So imagine that, right?
Like, you move $70 million to this new bank because your old bank was shut down because of this measure, Operation Choke Point 2.0, and then the new bank says, "Because of the same thing that led to that bank's failure, we cannot service you."
And I wanna just reiterate, the reason they couldn't service them was because ultimately regulators were giving them no choice. They were giving them no clear indication.
They were saying, "You can't deal with these funds until you get our approval and until these are regulatory sound," and there were no guidelines set up for that.
So I think those, those pause notes, um, as far as I can, or those pause letters were kinda like the first shot across the bow, and then over the next two years, there's just a slew of letters and memos from these agencies that exacerbate the problem.
It's funny, 'cause Fred's story, I have a story exactly like that, except it wasn't $70 million. [laughs] It was a few million dollars less. But it's like, it was weird.
I was like, I got literally debanked for, for no reason. Like, why? It was out of nowhere. Went to a new bank.
Scrambled to get the money in that bank, and then after going through the approval process, they're like, "Oh, you can't be here either." Uh, the same thing. It was, it was wild.
And, uh, it was, like, um, very difficult to explain to friends and family that this was, uh, very strange to me.
And I had been, I, you know, I've had other companies with other normal bank accounts, uh, and so it was very difficult to explain to people that I wasn't scamming anything, that they're, they were like, "Why, why can't you just get a bank account?"
I'm like, "I, I don't know why. I have no why. I can't figure out why."
And so a lot of people in our industry were having the, in our industry were having these exact same experiences, and Fred's story is just one of many.
It just happens to be recorded in a testimonial format on the House floor.
Yeah, and what's crazy about this is this has been a problem since crypto businesses have been of any consequence and have actually, you know, once they started scaling, uh, you know, 10 years ago and actually getting decent revenues, building their businesses, hiring out peopleA lot of them still to this day bank in stable coins because of these problems.
And what's interesting about this to me, and we'll get into the history here in a second, is in his first administration, the, the, the Trump presidency and his agencies actually did a little bit of work to try to increase regulatory clarity and let banks deal in digital asset customers without these threats of having, you know, [chuckles] um, funds frozen or being told that they can't deal with these cu-customers.
And the Biden administration rolled those back.
So there was, like, this small window in twenty sixteen to twenty twenty where, like, the banking relationships in crypto were actually s- like, it seemed like they were on the up and up.
People were a little bit, uh, you know... They, they were a little more relaxed about their ability to actually be banked, and obviously all that went out the window.
Uh, but going back to the timeline, uh, going back to a date in twenty twenty-two, on August 16th, the Federal Reserve gets involved and releases the supervisory letter SR226.
This letter warned that digital asset activities pose risks to, quote, "safety and soundness, consumer protection, and financial stability," all the buzzwords that the boomers love to hear, um, if you wanna scare them away from an asset that's making all of their children have any sort of shot at the life that they did.
Anyway, this required banks to ensure digital asset activities were legally permissible. Now, this goes back to the kinda catch twenty-two that banks were dealing with.
What is legally permiss- uh, permission, uh, legally permissible?
Because there are anti-money laundering laws on the banks that these banks-- on the books that these banks are already following, you know, blacklisted addresses, I'm sure, going through a scan.
Like, there, there are anti-money laundering and compliance tools in place, and they're following those, but they're being told they need to do more without being directly told what that is.
Um, they're told from this letter they need to analyze both state and federal law. I would be very shocked if they weren't [chuckles] doing that already. These are banks.
They're not fly-by-night payday loan lenders, right? Like... And the last thing is they have to notify the Fed before engaging in digital asset activities.
This is the one that just absolutely sends me, because I don't know in, in terms of, like, you know, broad-reaching banking regulations, but in what world does a bank need to notify the Fed when they're banking any other client for any other reason?
Yeah. Right? Unless... I, I, you know, I can't really think of a situation, because if there's something to do with fraud or tax evasion, that's for the IRS anyway, or at least for tax evasion.
Um, so I think that was another one of the big ones.
Once you have the Federal Reserve stepping in like this, it, you know, kind of the emperor's has no clothes, and now his skin is peeled off, 'cause it kinda shows exactly where their head's at.
They just want this entire industry gone because it threatens the model that the US dollar system runs on. Um... [clears throat] Yeah.
So, uh, a-as you kinda go through the timeline, I will then reinforce by saying, uh, by using this format.
Here's a conspiracy that we had, and then here's where the conspiracy according to the report, which is verified in real, like, uh, hard, like, letters, uh, is verified. So conspiracy theory, the shadow ban was real.
The banks were privately told by regulators to drop crypto clients even if the clients are fully compliant.
Verified, we verified that the FDIC sent pause letters to effectively, uh, stop or delay digital asset activities. And, um,
more specifically, the report says the r- uh, that regulators used informal guidance and threats of enforcement rather than actual rulemaking.
So this traps the banks in, like, a regulatory purgatory with their crypto clients, specifically from the executive summary on the page, page one.
Regulators use this discretion to exert substantial pressure on financial institutions, often through informal guidance such as inter-agency statements or interpretive letters to discourage these entities from engaging in digital asset-related activities.
In addition to informal guidance, regulators weaponized enforcement actions to achieve an anti-digital asset agenda.
So rather than this being actual, like, actually defined anywhere in any kind of regulatory guidance, [clears throat] it is, uh, implemented with informal guidance and threats to the bank.
So that's the conspiracy that we suspected, but we had not, uh... Now it is validated in, uh, the report. So- I, I think that's, again, just going back to all the wonderful color and commentary there, Charlie.
You know, it's a really important point to make. You expect to have laws on the books that clearly spell these things out or clear regulations.
And the way in which this was prosecuted, it was prosecuted through these letters sent to the financial institutions and kind of under-the-table tactics that really speak to, I think, what, uh, uh, a lot of the problems like libertarian and conservative types have with the expansion of the federal bureaucracy since the New Deal, right?
But going back to the timeline, so echoing what the Federal Reserve did, or rather the, the Federal Reserve echoing what the FDIC does here, because this happened before the Federal Reserve's letter.
But in April twenty twenty-two, Federal Reserve's letter that we just touched on came out in August twenty twenty-two.
In April twenty twenty-two, the FDIC sent out a financial institution letter, uh, that basically said the same thing as the Fed letter.
It said, "You are required to get FDIC sup-- uh, you are re-- it requires all FDIC-supervised banks to notify the FDIC before engaging in crypto custody, payments, and related services for Bitcoin companies and crypto companies," using all of the justifications of fraud, et cetera, that they've used for scare tactics in the past for this.
Now, what's interesting about this too is that that precludes crypto custody, right?
Well, the Trump administration actually, um, or rather a Trump-eraTrump-era appointees in twenty-twenty-one, um, in, in the OCC or the Office of the Comptroller of, of, uh, in the Office of the Comptroller of the Currency, uh, basically may- issued a mandate saying crypto custody is allowed, stablecoin reserve deposits are allowed, blockchain and stablecoin payments are allowed within the traditional financial system.
So this is a complete rollback of prior guidance from a prior administration.
Uh, and, and I-- that you'll see that throughout these documents that the Biden administration was rolling back things that had been done prior, not uncommon in presidencies, but, you know, obviously for the crypto industry, a huge shock after coming from a, a reg- generally favorable regulatory and, and, uh- Yeah.
And I'll say that, uh, there's a difference between, I might be showing my naivete here, but there's a difference between rolling back guidance, uh, which is fine, I just disagree with it, and, like, doing it in a way where our industry does not know that that has happened.
Right. So. Right.
And when the Biden r- uh, administration reversed this in twenty-twenty two, they issued a, a clarification on that letter, um, on IL-one-one-seven-nine, which was previously, uh, issued in the Trump administration, which banks must receive non-objection before engaging in cryptocurrency activities, barred any crypto activity prior to supervisory approval, and shifted the legality standard to subjective examiner satis-satisfaction rather than a more objective metric.
Um, multiple national trust bank charters stalled as a result, and this effectively reintroduced permission-based banking for a specific industry, and I think that's really the important point here.
It's, like, kind of showing the exact use case of Bitcoin by saying the traditional financial system is walling you off and asking for permission. Obviously, Bitcoin does not.
Uh, a few more timeline things in the Biden administration. On March ninth, twenty-twenty two, you know, right in the middle of these cascading bank failures, right? I mean, if, if, if y'all recall the, uh...
We just talked about how Silvergate, I believe, was the first to fail on March eighth. I mean, yep, March eighth, Silvergate announces voluntary liquidation.
So on March ninth, uh, the Biden administration, in all of their infinite reactionary wisdom, says, an executive order-- issues an executive order warning of financial stability risk regarding crypto, illicit finance risk, and directed agencies to expand enforcement instead of rulemaking.
So this is kind of the gloves-off moment, and when things start really accelerating. You know, those three banks that we mentioned were used as the sacrificial lambs to say, "See?
This is super dangerous, and we need to get this under control." And then from there on out, you have a number of the letters and actions that we just went through over the next twenty-two, uh, over the next two years.
Uh, the document also spends quite a lot of time talking about the SEC [chuckles] and all of the things that it did or didn't do, rather, to, uh, to foster innovation and regulation within cr- the cryptocurrency space.
We won't get over the-- we'll go over those, but it's the TLDR is, like, under Gary Gensler, there was this policy of basically, um, creating policy by enforcement instead of enforcing policy.
And it led to a number of, you know, stalemates within the crypto ecosystem for a number of, you know, uh, DeFi applications, uh, and certain tokenized, uh, use cases.
Whether or not you agree those exist, if you're doing things by the book, there's no reason why you shouldn't be able to list those in the US. The-- Yeah. We-we're going to enforce things.
We're gonna do things by the book, and then the book, but the book does not exist, so we cannot reference it.
Um, this is one where I think even some of those hardcore Bitcoiners do line shields up with entities like Hayden Adams over Uniswap, or even some of our mortal enemies, Brad Garlinghouse over at Ripple.
Like, Ripple fought this tooth and nail and won in the federal courts, and at some level, as much as I just cannot stand Ripple, um, I was cheering because this was a victory for our industry, um, [clears throat] even if it was Ripple enjoying the spoils of that the most.
I'll go back to my, uh, format of, uh, conspiracy theory and then validation. So conspiracy theory. Reputational risk was veri- was weaponized.
Regulators used vague terms like re-reputational risk to force banks to drop legal but politically disfavored entities.
This is verified in the report on page seven, uh, as the report confirms that regulators used reputational risk assessments to pressure banks.
If a bank did n- did not drop a crypto client, they faced threats of lower CAMELS ratings, which are safety and soundness scores, which could cripple their ability to do business.
That's one of several ways that this soft shadow reputational risk is weaponized. And then also it was coordinated.
So it's the Fed, the FDIC, and OCC who are working together, so it wasn't this kind of individual department thing. It was multiple departments across the federal, uh, across the bureaucratic apparatus.
[clears throat] Um, there's talk of, like, policy sprints that the Biden ad- administration used to align internal strategies.
And then when Congress began to, uh, draft their actual legislation, like the stablecoin bill we saw finally get through recently, these agencies ramped up their ability to choke the industry before the laws could be passed.
On page twenty-seven, in fact, this goes in, um, into detail, where in one email, a Department of Treasury employee wrote to staffers of the FDIC, Federal Reserve, CFPB, and the SEC, and the CFTC, in advance of a meeting the following day, "I want to flag..."
I quote, "I want to flag that in light of the fact that we've all recently received texts from the House Financial Services Committee staff developments in Congress that the committee's interest will be likely a bigger part of the discussion than previously anticipated."
So these are emails and not, like, papered up, you know, regulations that people are gonna follow. So that's my-Addition to we had these conspiracies and now we're like, okay, the docs are coming out, the emails.
Oh man, it's always somebody's emails being released, isn't it? [laughs] Just because, uh, you know, Ch- Choke Point 2.0 is over doesn't necessarily mean that banks are your friends, guys.
So this is Jack Mallers, a tweet from him recently, I'm gonna get it up on the screen for those following along on video, where he says, and I quote, "Yes, a proud moment. So proud I got it framed."
And this is a letter from, uh, JPMorgan Chase, Chase Bank, informing Jack Mallers that they are closing his account, uh, for the same reasons that banks were restricted from using Bitcoin during Choke Point 2.0, for vague reasons of fraud, all that kind of stuff.
So the reason why I pull this up is, like, I'm-- I wanna be very optimistic about Choke Point 2.0 being over, and this being made of a big show, this kind of like what was a witch hunt or is perceived as a witch hunt actually having real smoke there and real fire.
Uh, I wanna just contextualize that with the fact that at the end of the day, the government is one enemy, and, like, quite frankly, the banks and the entrenched financial system are the other enemy.
And just because the government is not forcing banks to close these accounts now doesn't mean the banks won't do it, 'cause they can do whatever they want. They don't have to bank you if they don't want to. Yeah.
Uh, I'll echo that. You know, it's, it's very much not over. It's just the, the, the, the, the heat, the initial heat and the initial, uh, salvo is probably over.
Uh, now it's a little more complicated 'cause we have to figure out what is still happening, to what degree, who's behind it, and we're not conspiracy theorists anymore.
Uh, the battle's being fought a little bit more out in the open it seems, which at least we've won that battle.
So I'm certain that our industry, which I think reactionarily or, uh, very reactively, uh, s- supported Trump and raised some of the biggest money ever towards a campaign for that single, uh, single issue PAC that we had, the, the crypto PAC.
Um, I think our industry will probably have, have some reckoning ahead of us, um, for the mast that we tied ourselves to under this current administration.
So, um, for the time being, we'll at least celebrate that we're not getting debanked as quickly and as rapidly, and it's a little more clear how to conduct business in the United States.
And it appears that the existential risk that we feared, which was the end of the crypto industry in the United States, is not the near term future. So we will see where we go.
If you like this kind of podcast, if you like more conspiracy theories, make sure to s- like and subscribe to Blockspace Podcast, where Colin and I hit, uh, conspiracies and, uh, and, and more.
So make sure to leave us a, uh, review if you like it. And if you hate it, also drop that review and we'll try to get better. So thank you so much. Catch you all next week. [outro music]