US gov told banks to suppress crypto, Coinbase documents show

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As a seasoned researcher with years of experience navigating the complex world of financial regulations, I find these revelations both startling and concerning. The FDIC’s apparent effort to restrict U.S. banks from engaging with crypto businesses in 2022, as suggested by the internal communications unearthed by Coinbase, paints a picture of regulatory ambiguity that has long plagued this industry.

As a crypto investor, I’ve noticed that internal communications from the Federal Deposit Insurance Corporation seem to indicate they intentionally curtailed U.S. banks’ engagement with crypto-related businesses in 2022.

As an analyst, I’ve uncovered that the disclosed communications from Coinbase shed light on the fact that regulatory uncertainty has been a significant source of friction between cryptocurrency companies and federal banking institutions.

The documents, made available following a court case filed by Coinbase and published on Friday, contain instructions for banks to halt all operations pertaining to cryptocurrencies.

“We respectfully ask that you pause all crypto asset-related activity,” the documents read. 

Based on reports, these FDIC guidelines apparently caused banks to postpone or abandon their intentions to provide cryptocurrency services until they could clarify ambiguous regulatory demands.

CoinDesk was the first to report this news. 

FDIC to banks: “we respectfully ask that you pause all crypto asset-related activity.”

Shocking. Thank you to the Coinbase legal team for doggedly pursuing these documents.

— Miller (@millercwl) December 6, 2024

Coinbase believes these messages show a plan to cut off banking for legitimate crypto firms, often called “Operation Chokepoint 2.0” within the industry.)

Crypto’s fractured relationship with banking

Cryptocurrency businesses in the United States have faced persistent challenges in establishing dependable banking relationships, often attributing this difficulty to ambiguous or excessively conservative instructions from federal authorities. Banks tend to shy away from collaborating with crypto entities due to worries about regulatory adherence, fraud threats, and potential damage to their reputation.

In the absence of clearly defined guidelines, numerous banks choose to steer clear of the cryptocurrency industry, which presents a substantial challenge for crypto-related businesses as they often need conventional banking services to function effectively.

The FDIC’s correspondence seems to emphasize this trend. The communications reveal that the agency demanded answers to intricate questions regarding banks’ intended cryptocurrency operations, which frequently caused delays in approvals or even caused the banks to scrap their plans altogether.

Coinbase leaders believe that since there aren’t clear rules for cryptocurrencies, regulators can still apply unofficial limitations, thereby keeping the crypto sector separate from traditional financial systems.

The letters “show Operation Chokepoint 2.0 wasn’t just some crypto conspiracy theory. [The FDIC] is still hiding behind way overbroad redactions,” wrote Coinbase’s CLO Paul Grewal on X. 

According to cryptocurrency advocates, Operation Chokepoint 2.0 refers to a regulatory strategy aimed at restricting the crypto sector’s ability to use banking services. The critics claim that such measures hinder legitimate crypto businesses by essentially isolating them from conventional financial systems.

As a dedicated analyst, I firmly believe that law-abiding American businesses deserve unhindered access to essential banking services, free from excessive government intervention. The incoming administration holds a unique opportunity to rectify numerous suboptimal cryptocurrency policies. A key area for improvement would be reconsidering politically biased regulatory decisions such as Operation Chokepoint 2.0, which has caused undue concern within the crypto sector.

Paul Grewal via X.

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2024-12-06 19:13