Incoming Crypto Czar Calls Out Operation Choke Point 2.0

Eliminating Operation Choke Point 2.0, the covert U.S. regulatory campaign intended to cut crypto firms off from the banking sector, appears to be on the agenda of David Sacks, the incoming White House Crypto Czar.

On Dec. 6, Sacks tweeted that Operation Choke Point 2.0 “needs to be looked at,” citing the damage it has caused to the web3 and financial industries.

Sacks shared a thread published by Chris Lane, the former CTO of Silvergate Bank.

Silvergate entered bankruptcy in early 2023 after Federal bank regulators demanded that the firm deduce its exposure to clients operating in the digital asset sector to just 15%. With crypto firms accounting for the majority of Silvergate’s business, the bank said it was forced into an untenable situation.

“Regulators came in sometime in Spring 2023 and severely limited the amount of US dollar deposits we could hold for digital asset clients… our entire business model,” Lane said. “We effectively shut down the business and focused efforts on returning capital to shareholders.”

Recently published email communications between the U.S. Federal Deposit Insurance Corporation (FDIC) and banks in 2022 corroborate Lane’s account of events. The documents were obtained through a legal challenge.

“We respectfully ask that you pause all crypto asset-related activity," the FDIC said to an unnamed financial institution. "The FDIC will notify all FDIC-supervised banks at a later date when a determination has been made on the supervisory expectations for engaging in crypto asset-related activity."

Operation Choke Point 2.0

Operation Choke Point 2.0 (OCP2) has received increasing media attention after Marc Andreessen, general partner at the Andreessen Horowitz VC firm, discussed the widespread debanking of companies associated with digital assets on an episode of the Joe Rogan Podcast two weeks ago.

The term was coined by Nic Carter, the co-founder of Castle Island Ventures, in reference to Operation Choke Point — a U.S. Department of Justice program that sought to cut off access to banking services for industries believed to be at “high risk” of fostering illicit activity, including online gambling, pornography, and payday lenders, from 2013 through 2017.

The financial institutions targeted by the OCP2 included Signature Bank, which announced it would halve deposits from crypto firms in December 2022 before shutting down four months later, Metropolitan Commercial Bank, which stopped servicing crypto firms in January 2023, and Customers Bancorp, which was targeted by a Federal Reserve enforcement action in August.

David Sacks’ crypto background

Sacks’ tweet garnered a positive reception from prominent crypto community members, including Carter, Gabor Gurbacs, a strategic advisor to Tether, and John Deaton, a former Senate candidate.

On Dec. 5, Trump announced that Sacks would serve in the role of White House AI & Crypto Czar. Sacks will serve as an intermediary between the web3 industry and the White House, advising the administration on regulation.

Sacks, a former PayPal executive, is quickly gaining favor from the crypto community, owing to his long-term engagement with the sector.

“Bitcoin has the potential to be the next Internet -- the Internet of money,” Sacks tweeted in 2013. “I'm buying.”

In 2017, Sacks founded the VC firm, Craft Ventures. The company’s portfolio now includes at least 10 web3 companies, including dYdX, Set Protocol, and Lightning Labs.