‘The Fed Is Still the Blocker’: Nic Carter

The U.S. Federal Reserve was blowing more than a little hot air when it announced last week that it was withdrawing anti-crypto staff guidance that made it more difficult for banks to interact with crypto.

In an interview with CNBC today, May 1, Castle Island Ventures founding partner Nic Carter said that the Fed has yet to truly give the green light to banks to be able to work with crypto firms.

In what appeared to be a positive gesture to the crypto industry, the Fed announced in a press release on April 24 that it was withdrawing a supervisory letter that ordered banks to give advance notice of their intent to engage in crypto-asset activities. As that supervisory letter has acted as a de facto order not to engage in crypto-related activities, it was one of the main engines driving Operation Choke Point 2.0 — what is broadly seen as a covert, coordinated campaign against crypto companies in the U.S., via regulatory actions and policy.

In March, during the first White House Crypto Summit, President Donald Trump explicitly stated that his administration intended to end Operation Choke Point 2.0, arguing that under the Biden administration, "regulators strongarmed banks.”

“The Fed is still the blocker for banks to deal with stablecoins for crypto,” Carter told CNBC today.

Industry advocates push back

After the Fed’s pro-crypto seeming press release came out last week, Senator Cynthia Lummis called the action “just lip service” in an April 25 X post, saying that the central bank had ignored one of the most damaging actions it took to create Operation Choke Point 2.0: The Policy Statement on Section 9(13), voted in unanimously by the Fed’s Board of Governors in 2023.

“It said digital assets are highly likely to be inconsistent with safe and sound banking practices, which in Fed-speak means if you touch this, we are going to hit you with a very serious enforcement action,” a source familiar with the Senator’s thinking told The Defiant in a phone interview, adding:

‘The Fed is the problem’

The biggest, or at least the most visible impact of Operation Choke Point 2.0 came in early 2023, when three banks closely aligned with the crypto industry — Silvergate, Silicon Valley Bank and Signature bank — were shut down by regulators. Referencing these actions in a Fox Business interview today, May 1, Senator Lummis said that the Fed “closed down banks that were not failing and made them fail because they were dealing in digital assets.”

Carter, who coined the phrase Operation Choke Point 2.0 back in 2023, responded to Senator Lummis’s X post last week, saying: “The Fed is the problem still. I’ve been talking to a bunch of banks that want to do stablecoins. The constant refrain: still waiting on explicit permission from the Fed.”

The two other banking regulators, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) have been unraveling their parts of Operation Choke Point 2.0, with the FDIC removing “reputational risk” as one of its criteria for banks considering doing business with companies. The OCC has done the same. This was a hammer used against crypto companies wanting banking services.

Still no Master Accounts

The Senator’s X thread from last week also pointed to the Fed’s ongoing refusal to give crypto banks master accounts, which are essentially bank accounts for banks at the Federal Reserve, including storing funds with the Fed and accessing its payment services.

“They’re trying to show movement but are not interested in actually making progress,” the source told The Defiant in reference to the Fed withdrawing its previous guidance. “It’s noise, essentially.”

Caitlin Long, CEO of crypto-focused Custodia Bank, sued the Fed over its refusal to give her bank a Master Account.

Suggesting on X that the Fed is not complying with President Donald Trump’s executive order to kill Operation Choke Point 2.0, Long said on X last week that “Fed anti-crypto guidance is still in place.”

She added, “The stablecoin bill, when it becomes law, would overturn this—but it ain't over yet.”

Stablecoin legislation is expected to be revealed in a few weeks, as the House and Senate are attempting to reconcile their two bills, the House’s STABLE Act and the Senate’s GENIUS Act. The two bills have a great deal in common, but differ in the details, notably around how they treat yield-bearing and algorithmic stablecoins.