New Crypto Crackdown Is Underway

Prominent figures within the crypto community are raising alarms over what appears to be a new wave coordinated effort by US banks to systematically dissociate from businesses dealing in digital currencies. Operation Choke Point 2.0 which began last year, is a concerted government effort involving the Biden White House, several agencies, the Federal Reserve and influential members of Congress that aims to restrict crypto’s fiat access, thus potentially suffocating the industry.

Operation Choke Point 2.0 Underway Again

The recent outcry was ignited by John Paller, the founder and Executive Steward of ETHDenver and Opolis, who shared his personal ordeal with Wells Fargo on X (formerly Twitter). Paller detailed how, after “26 YEARS of patronage,” Wells Fargo abruptly terminated all of his accounts, including personal, business, and non-profit without providing a clear explanation.

Paller’s relationship with the bank, which involved millions in fees over the years, was severed in a manner that left him questioning the motives behind the bank’s decision. He said, “I suspect that it’s because my name was all over the Opolis accounts that were also closed last year due to crypto affiliation although we were told it was some other BS reason.”

After 26 YEARS of patronage, and paying millions in fees to them over that time, @WellsFargo debanked me without explanation. Checking, savings, credit card, personal line, non profit, business accounts…everything. I haven’t used my personal accounts for crypto purchases since… pic.twitter.com/NzWYpqgFGF

— J O H N P A L L Ξ R | pallΞr.Ξth (🦬,🦄) (@PallerJohn) March 30, 2024

Gabor Gurbacs, founder of PointsVille and advisor to Tether and VanEck, corroborated Paller’s assertions, confirming an industry-wide phenomenon of “quietly de-platforming businesses that have anything to do with crypto, even services.” Gurbacs added, “Operation chokepoint 2.0. is back.” This statement points to a broader, systemic issue within the banking industry, which seems to be acting in a concerted manner against the cryptocurrency sector.

The situation took on further gravity with Caitlin Long, CEO of Custodia Bank, entering the conversation. Long, a veteran in the blockchain space and founder of a bank that aims to bridge cryptocurrencies with traditional banking, reported an uptick in inquiries from crypto companies displaced by their banks.

“John—sorry to hear. Custodia has seen a marked uptick in inquiries in the past ~2 weeks from #crypto companies urgently seeking to replace bank accounts closed by their banks,” she said, suggesting an orchestrated effort against the industry.

Long’s insights underline a disturbing trend of financial exclusion that is not only immediate in its impact but also suggestive of a larger, perhaps politically motivated, campaign against crypto enterprises. Yesterday, Long reiterated via X:

CONFIRMED. There is *definitely* a witch hunt underway to debank fintech & crypto companies in the US. It’s very political. It’s illegal, wrong & may violate the FDIC’s 2019 Operation Choke Point lawsuit settlement. Debanking should be an election issue in November.”

Custodia Bank Fights For The Crypto Industry

Adding to the controversy is Custodia Bank’s own legal battle for banking equality. The bank’s quest for a Federal Reserve master account — a pivotal asset for any banking institution seeking autonomy from intermediaries — was recently thwarted. A federal judge in Wyoming ruled against Custodia, asserting that the Federal Reserve is not compelled to grant access to its master account system to every eligible depository institution.

This decision was met with criticism from various quarters, including SkyBridge’s Anthony Scaramucci and former Senator Pat Toomey, who perceived it as a setback for the crypto industry’s broader ambitions for integration within the traditional financial system.

Scaramucci, via X, criticized the Kansas City Federal Reserve’s rejection of Custodia’s application as “arbitrarily and capriciously” motivated by a distaste for crypto. “Judge […]did a complete 180 on the prior decision. Raises major questions about legality of Fed and potential political pressure from Sen E. Warren acolytes.

Similarly, Toomey expressed his dissatisfaction with the legal outcome, telling FOX Business, “it was contradictory and inconsistent with his decision in June when he denied the Fed’s request to dismiss the case. There’s no logic here at all, and I hope Custodia decides to appeal.”

At press time, Bitcoin traded at $66,771.