Coinbase’s Legal Battle with FDIC Reveals Operation Chokepoint 2.0
Coinbase chief legal officer Paul Grewal recently made public a series of letters from the Federal Deposit Insurance Corporation (FDIC) to banks, urging them to halt or avoid engaging in cryptocurrency-related activities. These letters, known as “pause letters,” date back to March 11, 2022, and have raised concerns within the industry.
The FDIC expressed uncertainties about regulatory requirements for crypto-related activities, stating that they had not determined the necessary regulatory filings for banks to participate in such activities. The agency also emphasized the importance of banks providing additional information about their crypto offerings to ensure safe and sound operations.
Furthermore, the FDIC scrutinized the legal analysis conducted by banks regarding the permissibility of crypto-related activities under Part 362 of the FDIC Rules and Regulations. This suggests that some state-chartered banks were exploring offering crypto services in 2022.
Coinbase’s FOIA request revealed these letters and shed light on what Grewal referred to as “Operation Chokepoint 2.0,” an alleged effort by the Biden administration to hinder the growth of the crypto industry. Grewal criticized the FDIC for redacting significant information and called for regulatory decisions to be reversed by the incoming administration.
Others in the industry, including Caitlin Long, CEO of Custodia Bank, raised concerns about the involvement of the Federal Reserve in the letters. Long suggested that the pause letters were coordinated decisions meant to discourage lawful crypto activities, rather than temporary pauses.
The pause letters, spanning nearly three years, indicate a coordinated effort among regulators to limit banks’ involvement in cryptocurrency-related activities. Critics argue that such measures hinder the industry’s ability to innovate and grow within the US financial system.
As the industry navigates regulatory challenges, it remains to be seen how the Biden administration will address concerns raised by Coinbase and others in the crypto space. Stay tuned for updates on this evolving situation.