Coinbase’s Chief Legal Officer, Paul Grewal, earlier today on December 7th, uncovered documents revealing the Federal Deposit Insurance Corporation (FDIC) attempted to halt crypto-related banking activities throughout 2022.
The documents, is a part of a Freedom of Information Act (FOIA) lawsuit, and showed the FDIC sent “pause letters” to banks urging them to suspend crypto-related activities due to the uncertain regulatory environment surrounding digital assets.
FDIC’s “Pause Letters” and Regulatory Uncertainty
This revelation raises fresh concerns about the Biden administration’s approach to regulating cryptocurrencies, with critics claiming it signals a resurgence of “Operation Choke Point 2.0,” a controversial effort to stifle the crypto industry.
In a filing on December 6, 2024, to the U.S. District Court for the District of Columbia, court documents revealed that the FDIC had sent letters to the boards of directors of several U.S. banks, requesting them to “pause all crypto asset-related activity.”
The letters cited the need for clearer regulations around digital assets and the uncertain nature of crypto regulations at the time. The FDIC assured these banks that they would receive further instructions on the supervisory expectations for engaging in crypto-related activities once a determination was made.
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While much of the content of the letters was redacted, the documents indicated that the FDIC had asked banks to provide more information on their crypto offerings. This was to ensure that the services would operate “in a safe and sound manner,” signalling that the regulator had significant concerns about the potential risks involved in crypto banking.
Furthermore, the FDIC scrutinized the legal analysis of these banks regarding the permissibility of offering crypto-related services under Part 362 of its regulations, which governs insured state banks. This suggests that some banks had begun exploring offering crypto services as early as 2022.
Paul Grewal’s Allegations of “Operation Choke Point 2.0”
The release of these documents stems from Coinbase’s FOIA request filed in October 2023, which sought clarity on an alleged 15% deposit cap imposed on crypto-friendly banks.
Grewal has been vocal about what he sees as a politically motivated effort to suppress the crypto industry. He argued that the letters from the FDIC provide concrete evidence of “Operation Choke Point 2.0,” an alleged strategy by the Biden administration to limit access to banking services for the crypto sector.
Grewal called for a reversal of these actions by the incoming U.S. administration, claiming that such regulatory decisions were designed to hinder the growth and innovation of the crypto industry. He further criticized the FDIC for withholding critical information by heavily redacting many sections of the documents.
Trump’s Potential to Reverse Crypto Policies
The revelation of these regulatory efforts may take on new significance as Trump gets ready to take over the White House. Trump has previously criticized the Biden administration’s handling of the crypto industry.
Trump’s stance could be a significant turning point for the crypto industry, especially as companies like Coinbase are currently grappling with challenges posed by restrictive regulations.
Under a Trump administration, crypto companies may find more supportive regulatory frameworks, offering a more favourable environment for growth and development.
While Coinbase’s legal team continues to fight for more transparency in the FDIC’s actions, concerns are rising across the crypto industry about the future of crypto banking in the U.S.
Many players worry that the FDIC’s efforts to restrict crypto banking will lead to a further consolidation of crypto services under a few large institutions, leaving smaller and innovative firms at a disadvantage.