U.S. Banks Instructed to Halt Crypto Services, Coinbase Uncovers Evidence

Confidential letters from the Federal Deposit Insurance Corporation (FDIC) reveal a systematic effort to block crypto businesses from accessing U.S. banking services, according to documents obtained by Coinbase.

Coinbase has released heavily redacted FDIC communications showing that the regulator directed banks to pause or avoid cryptocurrency-related activities throughout 2022. The documents, obtained through a legal battle led by research firm History Associates Inc., expose the FDIC’s behind-the-scenes influence in discouraging banks from engaging with the crypto sector.

What the Letters Reveal

The FDIC’s stance was clear: crypto-related banking activities were not welcome. One of the 23 letters shared by Coinbase included explicit instructions:
“We respectfully ask that you pause all crypto asset-related activity. The FDIC will notify all FDIC-supervised banks at a later date when a determination has been made on the supervisory expectations for engaging in crypto asset-related activity.”

These letters, often loaded with complex compliance demands, stopped many banks from moving forward with crypto products and services. In some cases, the FDIC asked banks to halt specific activities while they reviewed compliance protocols. However, the regulator itself appeared uncertain about the specific rules or filings required to approve such activities, creating a chilling effect on crypto innovation in the banking sector.

Industry Backlash

Coinbase’s Chief Legal Officer, Paul Grewal, has described the letters as undeniable evidence of a calculated effort to exclude crypto from the banking ecosystem.
“This is no conspiracy theory,” Grewal told CoinDesk. “The FDIC executed a deliberate plan to deny banking services to a legal American industry. That should alarm everyone.”

The crypto industry has long argued that it faces unfair treatment from regulators, likening this campaign to a modern-day Operation Chokepoint 2.0, a controversial government initiative from the early 2010s that targeted legal but politically sensitive industries by cutting off their access to banking.

Despite these revelations, the full scope of the FDIC’s actions remains unclear. Much of the content in the released letters has been redacted, including the names of the institutions and the specifics of the services they sought to offer. Coinbase plans to pursue further legal action to unmask these details, aiming to uncover the motivations behind the FDIC’s hardline stance.

Regulatory Uncertainty

The FDIC’s approach highlights the broader regulatory ambiguity surrounding crypto in the U.S. While agencies like the FDIC, Federal Reserve, and Office of the Comptroller of the Currency (OCC) have issued cautionary guidance about digital assets, there is still no unified regulatory framework governing the sector. This leaves banks caught between innovation and compliance risks, further stifling the growth of crypto integration in traditional finance.

Debanking in Action

The issue of “debanking” was also discussed in a recent congressional hearing. Anchorage Digital, a federally chartered crypto bank, testified that even it had been cut off from financial services.
“We’ve also been debanked,” said Nathan McCauley, CEO of Anchorage Digital. “It’s particularly surprising, because we ourselves are a national bank.”

The Road Ahead

Coinbase’s fight to expose regulatory overreach is far from over. Grewal emphasized the importance of transparency, stating, “Federal courts have repeatedly ordered the FDIC to disclose this information, yet they continue to resist. It’s time for full accountability.”

As the crypto industry continues its battle for fair treatment, the letters provide a stark reminder of the hurdles it faces in establishing legitimacy within traditional financial systems. Whether these revelations will lead to meaningful changes in how regulators approach crypto remains to be seen, but the debate over the sector’s future in U.S. finance is far from settled.