What is Operation Choke Point 2.0 and What Does it Mean for Bitcoin?

Operation Choke Point 2.0 is a term used to refer to a set of policies or initiatives that are designed to discourage financial institutions from providing services to industries that are deemed to be high-risk or undesirable.

The original Operation Choke Point was brought into life during the Obama administration in 2013 and was designed to target fraud and other illegal activities and focused on payday lenders, firearm dealers, and marijuana businesses. The initiative was criticized for being overly broad and leading to the denial of banking services to legitimate businesses, and the operation was ended by the Trump administration in 2017.

The term had now come back into the media in the 2.0 iteration and is being used to describe the concerted efforts by the Biden administration to restrict access to the banking industry for cryptocurrency companies. Proponents of this view make reference to the regulatory shutdown of Signature Bank. It is claimed that the bank did not fail. Instead, the FDIC sold it to Flagstar Bank in a deal where it acquired all the assets of Signature Bank but excluded all the deposits belonging to crypto companies. There is absolutely nothing subtle about this.

To date, it appears that the attack on the crypto industry had been stealthy and arbitrary as opposed to transparent and all-encompassing. This means that crypto companies may be able to find banks to work with, but that the list of available options will be both small and ever-changing. It would therefore be prudent for crypto companies to maintain multiple banking partners because you never know when the bank may stop serving the industry on short notice and provide no explanation as to why.

Another plan of attack is instead of choking all banks from crypto the regulators work to focus the crypto business on the large systematically important banks so they are able to exercise greater control over the flows. You can be sure that JP Morgan, Goldman Sachs, Barclays, Nomura, and UBS are all working with crypto desks, doing OTC trades for their high net worth individuals and potentially also building on and off ramps for cryptocurrencies.

The fact remains that the trade between fiat and crypto remains highly lucrative, and any attack of this nature against crypto is likely to further galvanize an already strong and passionate community where the sense of non-violent revolution is being continually stoked.

It comes as no great surprise that there is this attack on crypto because most of the global leaders are aged between 60 and 70. They are boomers that have presided over a period of unparalleled prosperity and have a strong interest in maintaining the status quo. They have accumulated a vast amount of both wealth and debt. This debt is now being layered onto the next generation who are in their 20s and 30s. This generation is going to have to carry this burden going forward, and this is a burden of debt, fear, uncertainty, protectionism, and scarcity. This approach is unfortunate and short-sighted. Instead of promoting new and upcoming technologies that can generate strong economic growth that can help younger generations pay off horrific student debt and enable them to build some level of wealth, these leaders are opting to crush these industries in favour of protecting a banking system that serves very few.

This also leads to jurisdictional arbitrage which will play against the US. Young entrepreneurs in the US, when faced with these limitations of crypto innovation, will seek out those territories like Dubai, Singapore, and Hong Kong that are trying to establish a foothold in attracting crypto talent with favorable tax regulatory frameworks that are clear and accessible. So while this operation for digital assets with the US, it will not stop adoption from happening globally. It will amount to the US shooting itself in the foot because it will exclude the US from technology that is transforming the financial sector.

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