Investigation revealing FDIC advised banks to halt crypto-related operations

In a significant development for the cryptocurrency industry, 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) in June 2024. The lawsuit alleges that the regulatory bodies are attempting to "disconnect" the crypto industry from banking services, a claim that Coinbase's Chief Legal Officer, Paul Grewal, described as "Operation Choke Point 2.0."

The lawsuit accuses the regulatory bodies of violating the Freedom of Information Act (FOIA), which grants public access to official documents. Crypto industry leaders argue that similar tactics are now being used against digital assets, mirroring a 2013 U.S. Department of Justice initiative that aimed to limit banking services for certain industries, including payday lenders and firearms dealers.

The controversy stems from the FDIC's advisement to banks to temporarily halt operations involving crypto assets. The first such request from the FDIC was made in March 2022, as disclosed in the case. However, between March 2022 and May 2023, no publicly available information indicates that specific banks in the United States received letters from the FDIC recommending the suspension of all cryptocurrency-related activities.

Coinbase's representative commented that the letters from the FDIC, even in their unredacted parts, are revealing enough to indicate the extent of the issue. The company plans to pursue access to fully unredacted versions of the letters, asserting that much of the disclosed documents have been heavily edited, making their content difficult to interpret.

Congressman French Hill has expressed concern over the debanking of crypto firms, asserting that law-abiding American businesses should not face government-imposed barriers to financial services. 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.

The FDIC has stated that it cannot comment on ongoing litigation. The SEC has not yet responded publicly to Coinbase's lawsuit. This development underscores the ongoing debate about the regulation of cryptocurrencies and the role of regulatory bodies in shaping the future of digital assets.