The Coinbase Chief Legal Officer Paul Grewal took to X to demand answers after learning from the AIMA survey that 75% of crypto hedge funds face issues with accessing basic banking services. None of the traditional alternative investment managers (e.g., real estate) experienced similar troubles with the banks.
The Grewal’s X post raises questions that have already been circulating in the media for quite a while. You have probably heard of Operation Choke Point 2.0 or read about the redacted documents published by Coinbase in which the Federal Deposit Insurance Corporation openly asks banks to pause all the operations associated with cryptocurrencies. The Alternative Investment Management Association (AIMA) survey report furnishes these concerns with new statistical grounds. Alongside Grewal, AIMA calls for action in the press release.
The survey was held in October, and its results are concerning. Before we move to the key takeaways from the press release, we should stress that, according to AIMA, debunking is a problem exclusive to crypto hedge funds. AIMA surveyed 20 other alternative investors who were not dealing with cryptocurrencies, and none of them had issues while receiving basic banking services.
The key takeaways from the AIMA press release
The key points from the AIMA press release are as follows:
- AIMA surveyed 160 crypto hedge funds. Three-fourths of them have contested facing troubles while accessing or growing standard banking services in the last three years.
- The troubles may include complete service denial. Only 2% of the hedge funds whose relationships were about to be terminated received a formal explanation for that. The named reason was that the banks were limiting crypto clients.
- According to AIMA, debanking of crypto businesses (the so-called “Operation Choke Point 2.0”) undermines the operational efficiency of the U.S. crypto sector, negatively impacts investors’ confidence, and harms the acquisition of the skilled professionals.
John D’Agostino, a co-chair of the AIMA Digital Assets Group, concludes that the banking challenges are not a niche problem as they burden the overall development of the U.S. economy and innovation.
The complete report is available here.
AIMA calls for change, Trump vows to terminate Operation Choke Point 2.0
AIMA calls for a collaborative effort to address the challenges faced by the cryptocurrency business. The association sees the solution in working closely with the new administration, the leaders of the banking sphere, and policymakers.
During the 2024 Presidential campaign, Trump, who was demonstrating his animosity towards the original Operation Choke Point started during Obama’s White House tenure, declared that he was going to shut down Operation Choke Point 2.0 as soon as he gets elected.
However, as the statements made by Jerome Powell during the FOMC event indicate, Trump will have to deal with various cryptocurrency sceptics, including ones with massive influences and high positions.
Wait a minute! Isn’t Operation Choke Point 2.0 just a conspiracy theory?
Let’s begin with a bit of history. Unleashed during the Obama presidency, Operation Choke Point was the Department of Justice’s secretive program allegedly aimed at denying banking services to fraudsters of all kinds, including those who traded ammunition, pornography, drug paraphernalia, etc. The idea was pretty simple: if we uncompromisingly cut the access to financial operations for fraudsters, they won’t be able to break the law, and many crimes will be prevented.
Soon, the operation achieved notoriety as, due to a lack of clear limitations, debanking turned into a weapon against political enemies instead of protecting society from fraud and crime. In 2013, the program critics came to believe that fighting the political opponents was the prime goal of Operation Choke Point. During the 2016 Presidential campaign, Donald Trump promised to eliminate this operation.
While the Obama-era Operation Choke Point was deployed officially, the existence of the modern-day Operation Choke Point 2.0 is yet to be confirmed. Nevertheless, the leaked documents and cases like the ones described in the AIMA press release make people think that an operation similar to Operation Choke Point exists nowadays and targets cryptocurrency companies. The operation is in effect, disregarding its official name. Although the FDIC seems to be the main actor in the operation, there are other disjointed institutions pushing banks to limit services for clients working in the crypto sector.
Some experts covering this “operation” expressed an opinion that the FDIC attack on the crypto industry is the response to the turbulent events that shook the crypto market in 2022. It includes the FTX collapse, TerraUSD losing its peg and crashing altogether, Celsius and Voyager freezing the users’ accounts, etc.
However, let’s look closely at the documents released by Coinbase in December 2024. We will find out that the FDIC was pressing banks to stop working with cryptocurrency companies before these events. Although the cases mentioned above are not the result of the FDIC actions, they took place in circumstances where banks were already forced to pause service for the crypto clients.
Possible implications of Operation Choke Point 2.0
Banks don’t have a clear checklist to determine if the client can access services. In a situation where banks cannot decide on the risk rate they are willing to work at, they may prefer to block services for the clients dealing with cryptocurrency to avoid a backlash from the FDIC.
AIMA has already voiced the possible implications. By far, pressure on banks and a lack of clear instructions will hurdle innovation in the U.S. and make the country unattractive for companies from the cryptocurrency sector.
