Two weeks ago, venture capitalist Marc Andreessen appeared on the Joe Rogan Experience and introduced many Americans to the notion of debanking. Describing it as a “privatized sanctions regime that lets bureaucrats do to American citizens the same thing that we do to Iran,” Andreessen observed how debanking has been leveled at unpopular political constituencies—notably, conservatives along with crypto and fintech founders.
Within his own VC firm alone, Andreessen said 30 tech founders have been debanked. Meanwhile, his claims prompted prominent crypto industry figures like David Marcus, Jesse Powell, Sam Kazemian, and Tyler Winklevoss to share personal stories about how they had been the direct targets of government-led debanking campaigns. In the broader tech community, Andreessen’s claims were met with surprise and bafflement. Could it really be the case that Silicon Valley entrepreneurs and venture capitalists have been subjected to a tailored private sanctions regime by the Biden administration?
The answer is yes. Starting in 2022, financial regulators under the direction of President Joe Biden’s National Economic Council used their control over the banking sector to wage a coordinated crackdown on the domestic crypto industry. Specifically, as we reported at the time, the FDIC forced banks to ensure that no more than 15 percent of their overall deposits came from crypto companies. Meanwhile, public information requests related to a Coinbase lawsuit revealed that the FDIC sent letters to multiple banks asking them to “pause all crypto-asset activity.” This behavior was both unfair and hypocritical given how, in an October 2023 report, the FDIC’s Inspector General acknowledged the agency’s campaign risked “inadvertently limit[ing] financial institution innovation and growth in the crypto space”—even as the FDIC publicly professed it would not prohibit or discourage banks from providing services to any specific class of customers.
The full details of the government’s pressure campaign are still sparse because conversations between bankers and their regulators are considered Confidential Supervisory Information. At the same time, FDIC officials sought to obfuscate their crackdown activities by relying on verbal instead of written guidance to deliver their instructions to banks.
There is also abundant evidence that the banks’ decision to cut off crypto clients was not a spontaneous, bottom-up phenomenon, but was instead instigated by regulators. Several banks between 2021 and 2023 had sought to grow their businesses by supporting the growing crypto industry. The FDIC even stated in 2023 that it was aware of 96 financial institutions that had declared their intention to pursue “crypto-related activities.” Instead, these banks were compelled to withdraw support for the space via covert edicts from their regulators.
The fallout has been brutal. Following the imposition of the 15 percent deposit threshold, the crypto-focused bank Silvergate chose to wind down its operations entirely in March 2023. During the banking crisis, the other major crypto-supporting bank, Signature, was shuttered abruptly, despite subsequent claims from its leadership that it was still solvent at the time. Since then, domestic crypto firms in search of banking have been forced to go offshore, or endure vastly higher costs or onboarding times—or have simply shut down.
Those of us in the crypto industry have likened the recent crackdown to Operation Choke Point, the Obama-era program aiming to marginalize certain industries through FDIC guidance to banks. This was not done through ordinary regulatory channels, but rather through a whisper campaign. Regulators told banks that they faced significant reputational risk for supporting legal but disfavored industries such as payday lending, firearms manufacturers and retailers, pawn shops, and adult businesses. A 2011 FDIC circular singled out 30 “high risk” industries for banks to avoid, many of them perfectly legal.
Critically, Operation Choke Point did not rely for its authority on legislation or official guidance, and never faced a meaningful challenge in court. The campaign largely ended following the leak of Justice Department memos that described the shadowy operation, and subsequent Republican-led Congressional inquiry. When Trump took office, he stopped the practice, installing a “Fair Access to Banking” rule at the OCC – which was rolled back in 2021 under Biden.
Some have pushed back against Andreessen’s complaints about debanking, arguing (typically without evidence) that crypto is so rife with fraud and criminality that it deserves to be treated with innate suspicion by the banking sector. This is misguided. Speculative concerns are precisely the kind of thing that regulators are not supposed to use as a pretext to cut Americans off from the banking system.
Yes, as in any industry, there are bad actors. But choosing to shape crypto banking policy purely through the lens of these actors is akin to debanking the asset management industry over Bernie Madoff, or debanking energy companies because of Enron.
The Biden Administration’s shadow debanking campaign also appears to be illegal. Scholars have argued that Choke Point behavior oversteps the statutory authority of agencies like the FDIC, and that crafting and broadly imposing secret new rules likely breaches the Administrative Procedures Act as well as due process. Meanwhile, Professor Julie Hill points out that financial regulators are now in the business of anticipating banks’ reputation risk based on their client set, outpacing their mandate.
Banking is a heavily regulated industry and should be treated as a neutral public utility, rather than a means to settle political grudges. In an era where virtually all payments are digital, the act of debanking amounts to banishing someone from large swaths of the modern economy. Banking should be understood as a basic right available to Americans, like access to power, water, or the internet. We don’t impose political restraints on who is permitted to access basic utilities, and financial access should not be different.
Whether or not you like crypto, it’s important to understand that this industry is just the latest of many that has been singled out for debanking. Venture capitalists and tech founders may not be the most sympathetic victims, but their plight warrants attention nonetheless. A political infrastructure which politicizes access to banking with no recourse is a dangerous tool. The left should be encouraged that Trump has declared his intention to end the practice, rather than turning it on his own domestic enemies. One can imagine his likely targets: abortion and gender transition clinics, progressive NGOs, universities, or left-leaning press outlets.
The Democrats will likely get a reprieve this time, given Trump’s stated plan to end debanking. As for the right, they have now faced the politicization of banks under consecutive Democrat administrations. Trump and the new Congress should prioritize an investigation into Biden’s debanking and seek a legislative end to the practice.
Nic Carter is a General Partner at blockchain-focused VC fund Castle Island Ventures. Austin Campbell is an adjunct professor at New York University’s Stern School of Business and the founder and managing partner of Zero Knowledge Consulting. The opinions expressed in Coins2Day.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Coins2Day
