How Fed’s Operation Choke Point 2.0 Led to Silvergate Bank’s Collapse

• Cryptocurrency advocate Nic Carter recently outlined how the Federal Reserve’s actions led to Silvergate Bank’s downfall.
• Despite significant stress from the FTX collapse, Carter claims that Silvergate was still financially viable.
• Carter emphasized that the push to reduce Silvergate’s crypto-related deposits to below 15% played a crucial role in its closure.

Discover how regulatory actions led to the collapse of Silvergate Bank and what it means for the cryptocurrency sector.

Regulatory Pressures and the Fate of Silvergate Bank

The crypto world was recently shaken when crypto advocate Nic Carter revealed the extent to which the Federal Reserve influenced Silvergate Bank’s demise. In early 2023, regulators initiated ‘Operation Choke Point 2.0’ targeting banks heavily involved in the crypto sector, specifically Silvergate and Signature banks. This coordinated effort involved the Federal Reserve, the FDIC, and the OCC, aiming to stifle banking services for crypto businesses.

The Mechanics of Operation Choke Point 2.0

According to Carter, the Biden administration’s regulators orchestrated a targeted campaign against Silvergate Bank. Despite the bank’s survival amid the FTX collapse and significant redemption pressures, new regulations compelled Silvergate to reduce its crypto-related deposits to less than 15% of its overall business. This directive fundamentally destabilized Silvergate’s business model, leading to its eventual collapse.

Bankruptcy and Unveiling the True Cause

Silvergate Bank filed for Chapter 11 bankruptcy earlier this week, amidst escalating regulatory scrutiny. Carter disputes prior narratives that linked the bank’s downfall to market losses and FTX exposure. His insights suggest that Silvergate remained solvent despite these challenges. The real decisive factor was the Fed’s pressure to drastically cut down on crypto-related deposits, which inherent destabilized the bank.

Ex-Executive’s Testimony and Broader Implications

Former Silvergate executive Elaine Hetric’s testimony during the bankruptcy proceedings corroborated Carter’s assertions. She verified that while the bank navigated the market downturn, the regulatory mandate forced a reduction in crypto exposure, ultimately leading to its closure. Her affidavit underscored broader regulatory actions, including the elimination of crypto business lines from bank acquisitions, thereby substantiating Carter’s claim of a deliberate regulatory crackdown.

Legal and Industry Repercussions

Carter argues that the administration’s actions are illegal, clashing with constitutional protections. He emphasized that the new wave of regulatory measures under Operation Choke Point 2.0 violates the Fifth Amendment. Prominent industry figures like Coinbase CLO Paul Grewal have echoed Carter’s sentiments, advocating for transparency and legal action against these overreach tactics.

Conclusion

The saga of Silvergate Bank epitomizes the broader conflict between the burgeoning cryptocurrency industry and regulatory institutions. Carter’s revelations and the corroborating testimonies paint a picture of a deliberate regulatory effort to marginalize crypto-friendly banks. As the debate continues, it highlights the urgent need for balanced, fair, and transparent regulatory policies in the evolving financial landscape.