Nic Carter

‘Operation Choke Point 2.0’ may have contributed to SVB collapse: Mulvaney

While the existence of “Operation Choke Point 2.0” has not been confirmed, Mick Mulvaney spoke of “rumors” of its existence and the potential side effects of such a policy.

If the United States government really is implementing “Operation Choke Point 2.0” it will hurt financial stability and may have contributed to the collapse of Silicon Valley Bank (SVB) according to Donald Trump’s former Acting White House Chief of Staff, Mick Mulvaney.

“I don’t want to think that the government would actually do that,” Mulvaney said in a March 22 Bloomberg interview in reference to the rumored operation. He did however recall attending hearings on the original Operation Choke Point — a government initiative that aimed to limit certain industries’ access to U.S. banking services.

“You have to wonder if there’s not certain policies that the administration is putting in place that have — perhaps the intended, perhaps the unintended — consequences of raising the risk, and of increasing instability, and did we just see that at SVB?” he added.

“Were people at SVB because they were really good at it, or was there some factor in there that said we’re at SVB because no one else will take us.”

Mulvaney elaborated that he believes crypto played no role in the downfall of SVB and suggested poor risk management was to blame. He implied, however, the pressure being put on U.S. banks to avoid crypto may have contributed to SVB’s collapse.

“Operation Choke Point 2.0” is a term coined by Coin Metrics co-founder Nic Carter and refers to apparently coordinated efforts to discourage banks from holding crypto deposits or providing banking services to crypto firms on the basis of “safety and soundness” for the banking system.

While is it unclear whether “Operation Choke Point 2.0” is an official strategy, Carter has claimed there is evidence supporting its existence.

Related: Yellen defends government intervention to avoid another SVB

In a Feb. 9 blog post, Carter outlined some supposed evidence, highlighting a Jan. 3 joint statement on crypto assets from the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), which warned that decentralized blockchain networks are “highly likely to be inconsistent with safe and sound banking practices.”

More recently, critics pointed to the FDIC’s different treatment of crypto assets during the takeover of Signature Bank as further proof of the existence of “Operation Choke Point 2.0.”

Magazine: Best and worst countries for crypto taxes — plus crypto tax tips

‘Operation Choke Point 2.0’ may have contributed to SVB’s collapse: Mulvaney

While the existence of “Operation Choke Point 2.0” has not been confirmed, Mick Mulvaney spoke of “rumors” of its existence and the potential side effects of such a policy.

If the United States government really is implementing “Operation Choke Point 2.0,” it will hurt financial stability and may have contributed to the collapse of Silicon Valley Bank, according to Donald Trump’s former acting White House chief of staff, Mick Mulvaney.

“I don’t want to think that the government would actually do that,” Mulvaney said in a March 22 Bloomberg interview in reference to the rumored operation. He did however recall attending hearings on the original Operation Choke Point — a government initiative that aimed to limit certain industries’ access to U.S. banking services.

“You have to wonder if there’s not certain policies that the administration is putting in place that have — perhaps the intended, perhaps the unintended — consequences of raising the risk, and of increasing instability, and did we just see that at SVB?” he added.

“Were people at SVB because they were really good at it, or was there some factor in there that said we’re at SVB because no one else will take us.”

Mulvaney elaborated that he believes crypto played no role in the downfall of SVB and suggested poor risk management was to blame. He implied, however, that the pressure being put on U.S. banks to avoid crypto may have contributed to SVB’s collapse.

“Operation Choke Point 2.0” is a term coined by Coin Metrics co-founder Nic Carter to refer to an apparently coordinated effort to discourage banks from holding crypto deposits or providing banking services to crypto firms on the basis of “safety and soundness” for the banking system.

While is it unclear whether “Operation Choke Point 2.0” is an official strategy, Carter has claimed there is evidence supporting its existence.

Related: Yellen defends government intervention to avoid another SVB

In a Feb. 9 blog post, Carter outlined some supposed evidence, highlighting a Jan. 3 joint statement on crypto assets from the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), which warned that decentralized blockchain networks are “highly likely to be inconsistent with safe and sound banking practices.”

More recently, critics pointed to the FDIC’s different treatment of crypto assets during the takeover of Signature Bank as further proof of the existence of “Operation Choke Point 2.0.”

Related: Best and worst countries for crypto taxes — plus crypto tax tips

Silvergate downfall sparks debate over whose fault it actually was

The demise of the crypto-friendly bank has prompted discussion about who tipped the first domino, and where crypto firms can turn for their banking needs.

The voluntary liquidation of Silvergate Bank has sparked many to share their thoughts about the source of its troubles and the broader impact of the crypto-friendly bank’s collapse on crypto. 

From lawmakers to crypto analysts, crypto firm executives to commentators — nearly everyone’s had something to say regarding the recent announcement from Silvergate.

Some United States lawmakers have used the moment to make a comment about the state of the crypto industry, labeling it a “risky, volatile sector,” which “spreads risk across the financial system.”

Senator Elizabeth Warren called Silvergate’s failure “disappointing, but predictable,” calling for regulators to “step up against crypto risk.”

Senator Sherrod Brown also chimed in, sharing his concern that banks that get involved with crypto are putting the financial system at risk and reaffirming his desire to “establish strong safeguards for our financial system from the risks of crypto.”

The senators’ remarks have sparked criticism from the community, some of whom argue it was not a crypto problem and that fractional-reserve banking was to blame — as Silvergate held far more in-demand deposits compared to cash on hand.

Several companies have instead used the recent announcement from Silvergate to reiterate their lack of or now-severed ties with the firm.

Binance CEO Changpeng Zhao assured customers on Twitter that the crypto exchange does not have assets stored with Silvergate, while peer exchange Coinbase has also assured its followers that no customer funds were held by the bank.

Meanwhile, Nic Carter, co-founder of venture firm Castle Island and crypto intelligence firm Coin Metrics, suggested that it was the government that “hastened the collapse” of Silvergate by launching investigations and legal attacks on it.

“They’re the arsonist and the firefighter in one,” he wrote.

The CEO of financial services firm Lumida — Ram Ahluwalia — had a similar take, arguing in a tweet that Silvergate faced a bank run after a senator’s letter had undermined public trust in the firm. He saidthat “Silvergate was denied due process.”

Related: Marathon Digital terminates credit facilities with Silvergate Bank

In an earlier blog post, Carter referred to “Operation Choke Point 2.0” as being underway, claiming that the U.S. government is using the banking sector to organize “a sophisticated, widespread crackdown against the crypto industry.”

Others believe the collapse of Silvergate won’t necessarily hurt the crypto industry, but along with proposed changes to tax laws, would exacerbate the exodus of crypto firms from the U.S.

With Silvergate winding down, some have also asked where crypto firms will turn to now.

Coinbase, which previously accepted payments via Silvergate, announced on March 3 that it would facilitate institutional client cash transactions for its prime customers with its other banking partner, Signature Bank.

Signature Bank, however, announced in December that it intended to reduce its exposure to the crypto sector by reducing deposits from clients holding digital assets.

To further reduce its crypto exposure, on Jan. 21 Signature imposed a minimum transaction limit of $100,000 on transactions it would process through the SWIFT payment system on behalf of crypto exchange Binance.