Challenges Persist for Crypto Hedge Funds in Accessing Banking Services
Recent reports from The Wall Street Journal have shed light on the ongoing challenges faced by crypto hedge funds when it comes to accessing banking services. According to a survey conducted by the Alternative Investment Management Association (AIMA), around 120 out of 160 hedge funds engaged in crypto have reported hurdles in this area over the past three years.
Interestingly, none of the 20 alternative investors in other asset classes, such as real estate and private credit, reported similar difficulties. The reasons for these banking issues varied, from unclear communication to outright termination of relationships.
For more than half of the crypto hedge funds that encountered problems, banks explicitly informed them that their relationships would be terminated. However, the explanations provided by the banks were often vague or nonexistent. Reasons cited for these decisions included a desire to limit exposure to crypto clients or the industry as a whole.
John D’Agostino, head of institutional sales at Coinbase and an AIMA board member, noted that while affected funds eventually found banking partners, these were often smaller or regional institutions.
Allegations of “Operation Chokepoint 2.0”
Rumors within the crypto industry have been circulating about an alleged effort by the Joe Biden administration called “Operation Chokepoint 2.0.” This purported initiative aims to restrict the growth of the crypto industry in the US by limiting access to banking services.
Recently, Coinbase chief legal officer Paul Grewal released letters from the Federal Deposit Insurance Corporation (FDIC) to banks throughout 2022. These letters urged institutions to pause or cease all crypto-related activities. The documents, obtained through a Freedom of Information Act (FOIA) request, were seen as evidence of the existence of Operation Chokepoint 2.0.
Caitlin Long, CEO of Custodia Bank, echoed these sentiments, suggesting that the letters indicate a coordinated effort to hinder the crypto industry in the US. Austin Campbell, CEO of WSPN, emphasized that the findings of the AIMA survey further support the reality of Operation Chokepoint 2.0.
As the crypto industry continues to navigate these challenges, it remains to be seen how regulatory developments and banking relationships will evolve in the coming years.