“Sinister” Operation Choke Point 2.0 Still Very Much Alive, Says Nic Carter

A concerted effort by the Biden administration to outlaw the crypto industry is alive and well, according to venture capitalist Nic Carter.

Operation Choke Point 2.0, as he calls it, included the demise of two pro-crypto banks (Silvergate and Silicon Valley Bank) that were politically pressured to shutter their doors and end their operations. Carter, who blew the whistle on the operation last year, claims things have somewhat stabilized, but the industry is far from being in the clear.

“In March 2023, the situation was very acute,” Carter told The Defiant. On a scale of 1-10, he placed the severity of the problem at “8 or 9,” but nowadays, “it’s more like a 6.”

Carter, who pointed to bankruptcy filings and exclusive interviews, seeks to highlight the moves of Democrats like Senator Elizabeth Warren and the Biden administration as the U.S. presidential election approaches.

Last year, he sent shockwaves through the crypto industry when he brought attention to a purported covert operation by the Biden administration to effectively de-bank and outlaw the burgeoning crypto ecosystem in the United States.

On Sept. 18, Elaine Hetrick, the former chief administrative officer of Silvergate Capital Corporation, filed a declaration supporting Silvergate’s bankruptcy filing on Sept. 17.

“Agencies would not tolerate banks with significant concentrations of digital asset customers, ultimately preventing Silvergate bank from continuing its digital asset-focused business model,” Hetrick said.

And that is one of the main concerns about the current operation – pressuring firms to reduce their crypto exposure is leading to cumbersome and expensive banking processes.

For example, Carter, a partner at Castle Island Ventures, explained that startups are, first and foremost, looking for help with banking. “The number one request is getting stable banking relationships,” he explained, and these take time. But it’s not only time; “banks are now saying it’s going to cost more, so they pass those costs on to the consumers, which makes the whole process much more capital intensive.”

Choke Point 1.0

The operation’s moniker is inspired by another regulation-by-enforcement campaign by the Obama administration.

Carter explained that during the 2010s, regulators made an effort to hinder certain industries that were considered ideologically opposed to the administration in power. These included ammunition sales, drug paraphernalia, payday loans, dating services, pornography, and others.

“The clandestine Operation Choke Point had more in common with a purge of ideological foes than a regulatory enforcement action,” wrote Frank Keating, a former governor of Oklahoma who served in the DOJ during the Reagan administration, in a 2018 op-ed for The Hill. “It targeted wide swaths of businesses with little regard for whether the legal businesses were swept up and harmed. In fact, that seemed to be the goal.”

Keating added that the program operated unrestrained for years, with no high-ranking official or banking partner prosecuted for their efforts.

Widely Misunderstood Demise of Silvergate

In his latest tirade against Biden’s ploy, Carter aims to shine a clearer light on the downfall of Silvergate and Silicon Valley Bank, which, in his eyes, is misunderstood even in the broader crypto industry.

The prevailing narrative, according to Carter, was that both banks were the architects of their own demise. Silvergate and SVB accepted crypto companies as clients and suffered the consequences when the crypto space “experienced tremors in 2022 and 2023,” he wrote. They then mismanaged the maturity of their asset portfolios through a period of rising rates.

Carter fundamentally disagrees. He reckons that we have evidence – pointing to the latest bankruptcy filings – that banks were “opportunistically executed” during the 2023 banking crisis.

He points to two people inside the Biden administration: Elizabeth Warren and Bharat Ramamurti. The former he calls very dangerous since she has a lot of influence when it comes to naming the heads of the SEC and other government agencies, whereas deputy director of the National Economic Council Ramamurti is one the staunchest crypto critics in Washington D.C.

Carter also thinks Silvergate could have survived its drawdown “before being hamstrung by regulators continuing to advance the covert operation. “It was very sinister,” he said. “Two banks are gone, and it still seems to be the case that there’s a general pressure campaign against banks not to service crypto.”

Is There a Way Forward?

Many in crypto are banking on Donald Trump to bring an end to Operation Choke Point 2.0.

Carter said that on day one of his first presidency, Trump eliminated all vestiges of Operation Choke Point 1.0. He replaced the leaders of the agencies in charge of the scheme, introducing pro-crypto figures like Comptroller of the Currency Brian Brooks.

Brooks is favorable to the underlying ethos of the crypto industry, claims Carter. “That banks shouldn’t have political factors, which is pretty much why crypto exists,” he said.

However, not everyone agrees that Trump is the clear way out.

“One way to understand the impact of the presidential election on crypto policy: Trump would be like playing on easy mode, Harris like hard mode,” wrote Jake Chervinsky, a lawyer on the board of the DeFi Education Fund. “But it's the same game — working with Congress, fighting in the courts, etc. — and we'll win either way. Crypto isn't going anywhere.”

Alex Thorn, Head of Research at Galaxy Digital, released a policy scorecard on the positions of Trump, Harris, and Biden regarding cryptocurrency. “Bottom line: while Trump is undoubtedly more favorable for the industry, we’re optimistic that Harris could be more supportive than Biden has been,” said Thorn.

Meanwhile, when it comes to Silvergate, there could be light at the end of the tunnel. “One claim is that Silvergate could get justice or compensation by showing that regulators acted improperly or that the government effectively seized the bank,” said Carter.