Investigation Reveals FDIC Advises Banks to Halt Cryptocurrency Operations

In a significant move, Coinbase, the largest U.S.-based cryptocurrency exchange, has filed a lawsuit against the Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC). The lawsuit alleges that the regulatory actions of these entities aim to "disconnect" the crypto industry from banking services.

The lawsuit claims that the FDIC's advisement to banks to temporarily halt operations involving crypto assets, which began in March 2022, violates the Freedom of Information Act (FOIA). Coinbase asserts that law-abiding American businesses should not face government-imposed barriers to financial services.

The lawsuit includes the disclosure of "suspension letters" from the FDIC, one of which, dated March 2022, states that the FDIC has not yet determined what regulatory requirements may be necessary for banks engaging in crypto asset operations. It recommends suspending all activities related to crypto assets.

Between March 2022 and May 2023, the FDIC issued similar letters and requested documents from banks related to crypto activities, including cost-benefit analyses, marketing materials, and risk disclosures. However, the FDIC did not publicly disclose any banks that were specifically commissioned with suspension letters related to cryptocurrency activities.

Coinbase plans to pursue access to fully unredacted versions of the letters from the FDIC, with its Chief Legal Officer, Paul Grewal, describing the FDIC's initiative as "Operation Choke Point 2.0," not a conspiracy theory. Grewal's reference to "Operation Choke Point 2.0" is a nod to a 2013 U.S. Department of Justice initiative that aimed to limit banking services for certain industries.

A representative of Coinbase commented that even the unredacted parts of the letters reveal the extent of the issue. In March, the Crypto Innovation Council, venture firm Paradigm, the U.S. Chamber of Commerce, and several other organizations supported Coinbase's demand for the SEC to establish clear rules for digital assets.

Congressman French Hill has expressed concern over the debanking of crypto firms, calling for transparency and a level playing field for all businesses in the industry. The outcome of this lawsuit could have significant implications for the future of the crypto industry and its relationship with traditional banking services.