Nic Carter, a prominent venture capitalist and well-known figure in the cryptocurrency space, has revisited his findings on Operation Choke Point 2.0 following groundbreaking testimony from a former executive of Silvergate Bank. This testimony has cast new light on the controversial actions taken by U.S. financial regulators in their efforts to stifle the cryptocurrency industry.
On September 20th, Carter shared an updated thread of his findings, which addressed crucial new details that significantly alter the narrative around the original Operation Choke Point 2.0 report. Carter had originally claimed that the Federal Deposit Insurance Corporation (FDIC) was responsible for issuing directives that forced banks to curtail their exposure to cryptocurrency. However, recent testimony from Elaine Hetric, former chief administrative officer of Silvergate, clarified that it was in fact the San Francisco Federal Reserve (Fed) that issued these orders. This revelation impacts major crypto-friendly banks like Silvergate, Signature Bank, and Silicon Valley Bank.
Silvergate Testimony: A Key Revelation
The critical piece of testimony from Elaine Hetric offers an unprecedented look into the actions of federal regulators in the context of Operation Choke Point 2.0. Hetric revealed that the San Francisco Fed was the driving force behind directives instructing banks to reduce their crypto deposits by 15%. This instruction, according to Hetric’s testimony, directly contributed to the demise of Silvergate and other financial institutions that had been involved in the cryptocurrency industry.
Carter’s report underscores how U.S. financial regulators, particularly under the Biden administration, were working behind the scenes to pressure banks into cutting ties with the rapidly growing crypto sector. The claim that the Federal Reserve rather than the FDIC was responsible for these orders reshapes the conversation around Operation Choke Point 2.0, revealing a coordinated effort from multiple regulatory bodies.
A Closer Look at Operation Choke Point 2.0
Operation Choke Point 2.0 refers to an ongoing effort by U.S. financial regulators to discourage banks from providing services to cryptocurrency firms. This operation mirrors the original Operation Choke Point, a controversial program from the Obama administration, which aimed to cut off banking services to industries deemed to be at high risk for illegal activity, such as firearms dealers and payday lenders.
However, Operation Choke Point 2.0 is unique in its focus on the cryptocurrency industry, particularly as the sector gained traction and began integrating into traditional financial systems. By discouraging banks from servicing crypto companies, the U.S. government effectively restricted access to the financial system for businesses involved in digital assets.
In Carter’s analysis, the Biden administration’s push to crack down on the crypto industry is driven by concerns about fraud and money laundering, particularly following the high-profile collapse of FTX and the ensuing scandals. However, the aggressive tactics employed by regulators have sparked criticism from within the crypto community, with many seeing these actions as an overreach that threatens innovation and financial freedom.
How Silvergate and Other Banks Were Affected
Silvergate Bank, a California-based institution that became a cornerstone for crypto-related banking, was one of the primary victims of Operation Choke Point 2.0. The bank played a pivotal role in offering services to cryptocurrency exchanges, miners, and other digital asset firms, making it a target for federal scrutiny.
Carter notes that the public narrative surrounding Silvergate’s collapse has been largely misleading. Mainstream accounts suggest that the bank’s downfall was a result of FTX-related fraud and the financial impact of crypto deposit withdrawals. However, Carter argues that the new evidence, including Hetric’s testimony, shows that Silvergate’s demise was actually driven by the concerted efforts of U.S. financial regulators to isolate crypto-focused banks from the broader financial ecosystem.
As a result of these regulatory pressures, Silvergate was forced to significantly reduce its exposure to crypto deposits, ultimately leading to its insolvency. Similarly, other major banks like Signature Bank and Silicon Valley Bank also faced intense regulatory pressure, which contributed to their struggles in the wake of the cryptocurrency market’s volatility.
The Role of the Office of the Comptroller of the Currency (OCC)
Another critical player in this story is the Office of the Comptroller of the Currency (OCC), which issued guidelines that further hampered banks’ ability to work with cryptocurrency firms. According to Carter, the OCC’s stringent policies on digital assets made it nearly impossible for banks like Silvergate and Signature to recover from the market downturn. Any attempt to sell or manage their crypto-related businesses was effectively blocked, leaving these banks with little room to maneuver.
A key example of this is Signet, a cryptocurrency payment network launched by Signature Bank. Despite its promise to revolutionize payments within the crypto industry, the platform was rendered obsolete by regulatory constraints, preventing Signature from utilizing one of its most valuable assets during the crisis.
Government Coordination: The Heart of the Controversy
Carter’s investigation emphasizes the coordinated effort between multiple U.S. government agencies, including the Federal Reserve, FDIC, and OCC, in executing Operation Choke Point 2.0. While these agencies did not explicitly ban banks from dealing with cryptocurrency, they issued a series of warnings and guidelines that made it clear banks would face significant risks if they continued to offer services to the crypto sector.
This soft prohibition had a chilling effect on the industry, as banks that previously worked with cryptocurrency firms found themselves at odds with regulators. Some institutions, like the Metropolitan Commercial Bank, shut down their crypto divisions entirely, while others, like Binance, suspended U.S. dollar bank transfers for retail clients in the United States.
Carter’s claim that “these banks did not die by suicide but by murder” underscores the severity of these regulatory actions. According to Carter, the scandal lies not only in the aggressive tactics used but in the lack of accountability among those responsible for driving these banks out of business.
The Broader Impact on the Crypto Industry
Operation Choke Point 2.0 has had far-reaching consequences for the cryptocurrency industry. By severing the ties between crypto firms and traditional financial institutions, U.S. regulators have made it increasingly difficult for businesses in the sector to operate smoothly. This has led to liquidity issues, increased transaction costs, and a general sense of uncertainty in the market.
Furthermore, the regulatory climate has pushed many crypto businesses to explore alternative banking solutions outside of the U.S., including offshore accounts and decentralized financial services. While these solutions offer some relief, they also come with additional risks and challenges, particularly in terms of security and regulatory compliance.
Despite these challenges, Carter remains optimistic about the future of cryptocurrency. He believes that while the current regulatory environment is stifling innovation, it is unlikely to prevent the long-term growth of the crypto industry. In his view, the collapse of banks like Silvergate and Signature is a temporary setback rather than a death knell for the industry.
Conclusion
Nic Carter’s ongoing investigation into Operation Choke Point 2.0 and the collapse of Silvergate Bank sheds light on the complex relationship between the U.S. government and the cryptocurrency industry. Through coordinated efforts from the Federal Reserve, FDIC, and OCC, the government has sought to limit the integration of crypto into the traditional financial system, often with devastating consequences for the banks involved.
However, as Carter’s findings suggest, the cryptocurrency industry is resilient, and while regulatory hurdles may slow its progress, they are unlikely to stop it entirely. As more revelations come to light, the full impact of Operation Choke Point 2.0 on the future of cryptocurrency remains to be seen.
