Did the FDIC Under Biden Have an Unfair Bias Against Crypto? 🤔
The new FDIC chair isn’t so sure.
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Hey all! I’m Veronica Irwin, Unchained’s regulatory reporter.
I think it’s fair to say the crypto community lives in a bit of a bubble. And, as with any information echo chamber, the industry often convinces itself of things that aren’t so certain.
In crypto, nearly everyone agrees that bank regulators unfairly discriminated against crypto under the Biden administration.
On crypto X, we see a nearly never-ending stream of anecdotes from business leaders saying that they experience a high amount of friction in obtaining banking services, that they are often de-banked all together, and that this seems to be the product of direction from the top because leadership just doesn’t like crypto. In our own investigation in October, we reported that a lot of reputable sources, including former regulators and bank executives, tell a similar story, some even alleging that bank regulators are breaking the law.
Also in this bubble, this discriminatory de-banking, dubbed “Operation Choke Point 2.0,” ended with the inauguration of the Trump administration. People took the new Republican leadership’s comments, both from the White House and the FDIC, to mean that they had seen the evidence, were sure Operation Choke Point 2.0 had actually happened, and were going to change it.
But, so sorry — I think I need to burst that bubble. Some recent conversations I’ve had suggest that crypto has gotten a little ahead of itself ...
Why the new FDIC Leadership Isn’t Convinced Operation Chokepoint 2.0 Exists
Crypto X thought crypto debanking ended with the start of a new Republican administration. But the new leadership isn’t convinced there was an unfair bias against crypto in the first place.
“Operation Choke Point 2.0,” a phenomenon in which the crypto industry claims numerous entities and individuals in crypto were de-banked due to unfair discrimination against the industry, ended with the departure of the Biden administration — at least, that’s what industry leaders have been saying on X.
“OCP2.0 is over,” venture capitalist Nic Carter posted on X last week, after a Trump executive order declared an intention to protect fair access to banking. Several other high-profile accounts on X have expressed similar sentiments publicly. (When asked about the remarks, Carter added that he thought Operation Choke Point 2.0 wasn’t “over” and wouldn’t be until there are new permanent heads at the bank regulatory agencies and Congressional legislation).
Read More: President Trump Declares Crypto a National Priority in Executive Order
But the person who currently has the most power to actually reverse the alleged debanking scheme, Acting FDIC Chairman Travis Hill, hasn’t seen concrete evidence a conspiracy against crypto actually existed, according to sources who have spoken with him about the issue. Statements he has made on the topic, which many in the industry took as Hill confirming that Operation Choke Point 2.0 existed, were misinterpreted.
Against Discrimination — If It Existed
A speech Hill gave on January 10th, in particular, has grabbed several industry leaders' attention. In the speech, Hill said that “there is no place at the FDIC for anyone who has pushed — explicitly or implicitly — banks to stop serving law-abiding customers.” But sources who have met with Hill said that was not to be taken as confirmation that Operation Choke Point 2.0 occurred — but rather, that Hill would not support such a policy.
Hill has heard, and continues to hear, alarming anecdotes about crypto de-banking, one source directly familiar with meetings Hill has had with industry leaders explained. He also considers a series of pause letters released as part of a court case between crypto exchange Coinbase and the FDIC, to be strong evidence suggesting that there was a concerted effort by federal bank regulators to distance their supervised institutions from crypto, the source, as well as Coinbase Chief Legal Officer Paul Grewal, said.
However, Hill is also attentive to the fact that FDIC supervisors would argue that this distancing did not occur because of a dislike of crypto, but rather genuine concern about the safety and soundness of banks they supervised, money laundering risk, or other types of financial risk. “What Travis was trying to do in his January 10th speech was multifaceted. It was to get at all of that without really saying all of that,” the source, who has discussed the speech with Hill, said.
“His core position is there is absolutely no place within the FDIC or any other regulatory agency for indiscriminately directing supervised institutions to de-bank clients or to not allow them to bank with them in the first place — but as regulators, we also need to stay on top of true risks.”
Read More: Regulators are Limiting Banks Serving Crypto Clients. Does That Violate the Law?
A Question of Political Pressure
Hill faced political pressure to say something even without the evidence, a different source familiar with the political dynamics of the FDIC Chair selection process explained.
Because he serves in an “acting” role and President Trump has not formally announced his pick to lead the agency, Hill is effectively auditioning for the permanent position.
Making statements that imply a positive orientation towards industries that have supported Trump, like crypto, help Hill score a “political win” with the new presidential administration, the source, who also knows Hill to be unconvinced there was a definite conspiracy against crypto, explained.
Hill is broadly considered the most likely pick for the permanent FDIC chairman position.
What Would Be a Smoking Gun
Paul Grewal, Coinbase’s Chief Legal Officer, who publicized the pause letters as proof Operation Choke Point 2.0 “was no conspiracy theory,” reluctantly admitted to Unchained that he did not know Hill to have seen concrete evidence of FDIC employees or the Biden administration scheming to hurt the industry.
Anything short of actual communication from Biden administration officials to the FDIC, from prior Chairman Gruenberg to his subordinates, or other internal FDIC communications affirmatively expressing an intent to discriminate would probably fail to meet the high bar of undeniable proof, Grewal, who has met with Hill, speculated.
Read More: Rep. French Hill Says He’d Investigate Operation Choke Point 2.0 as Financial Services Chair
Grewal also speculated that Hill may not have seen these such communications because they were hidden or destroyed. “There are serious concerns that we have raised in our district court litigation that the FDIC either didn’t look for the materials when the Inspector General originally asked for them, or took affirmative steps not to create the materials in the first place, or to even, worse, potentially shield them or destroy them,” Grewal said.
However, Grewal believes that the ongoing search for evidence, whether that be Travis Hill’s own research, Congressional investigations, or Coinbase’s court battle with the FDIC, will eventually unearth this undeniable proof of Operation Choke Point 2.0 — whether in document form, if the documents exist, or by way of testimony.
“It’s going to come out,” Grewal said. “They can’t hide forever.”
The FDIC declined to comment.
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