The "strangulation" of US financial regulation: Why the Bitcoin industry is trapped in banking difficulties

The bank storm of March 2023 came suddenly. As Silicon Valley Bank(SVB) and Signature Bank(Signature Bank) consecutively collapsed, the crypto industry realized a problem: the “choke point”(critical node) in the financial system is tightening. This is not a natural market cycle adjustment, but an organized, strategic regulatory pressure.

Regulatory Bias Behind Bank Run

On March 8, 2023, Silvergate Bank(Silvergate Bank), which focused on serving crypto clients, announced voluntary liquidation. This bank has been closely linked to the Bitcoin ecosystem since 2013—CEO Alan Lane himself is a Bitcoin investor. Amid the shock of FTX’s collapse and the downturn of the crypto market, the bank’s fate took a sharp turn.

Two days later, Silicon Valley Bank(SVB) was taken over by California regulators, becoming the second-largest bank failure in U.S. history. On the surface, it was a combination of investment portfolio risk and a customer withdrawal storm—by March 9, $42 billion had been withdrawn. But deeper reasons are worth exploring: many of this bank’s major clients are crypto industry participants, who are also rapidly withdrawing funds due to market difficulties.

What is even more noteworthy is the attitude of regulators. On March 12, Signature Bank(Signature Bank) was closed by the New York State Department of Financial Services, becoming the third-largest bank failure in the U.S. About 30% of its deposits came from the crypto sector, with approximately $7.95 billion in uninsured deposits accounting for nearly 90% of total deposits—these figures reflect its high-risk exposure. But what truly drew attention were the subsequent actions of the U.S. Treasury, Federal Reserve, and FDIC.

When federal agencies “separated” Signature Bank’s crypto-related assets, a sharp critique was issued by The Wall Street Journal. Barney Frank, a former Congressman who drafted the Dodd-Frank Act and later served on Signature Bank’s board, bluntly stated: “I think regulators are trying to send a very tough anti-crypto signal. We have become scapegoats because, fundamentally, there’s no reason for bankruptcy.”

This recalls the 2010s “Operation Choke Point”—a movement ostensibly aimed at combating fraud, but in reality, it conducted large-scale financial strangulation of legitimate businesses.

Repeating History: From Operation Choke Point to Choke Point 2.0

Operation Choke Point began as an initiative by the U.S. Department of Justice targeting “high-risk businesses.” Regulators sought to achieve their goals by restricting financial institutions’ services to specific industries—from ammunition sales to direct sales scams. But this operation ultimately affected thousands of legitimate enterprises, leading to multiple lawsuits and federal investigations. Former Oklahoma Governor Frank Keating described it as “more like a purge of ideological opponents than regulatory enforcement.”

In 2017, the Trump administration’s Department of Justice officially ended Operation Choke Point. But regulators continued to use similar tactics.

In 2023, the Biden administration, through a series of coordinated actions, reignited this strategy—this time targeting the crypto industry.

On January 3, the Federal Reserve, FDIC, and Office of the Comptroller of the Currency(OCC) jointly issued a statement warning banks to be vigilant about crypto risks. This seemingly neutral announcement actually sent a clear signal to financial institutions: stay away from crypto businesses.

On January 27, the White House released the “Crypto Risk Management Roadmap,” explicitly stating “cryptocurrencies should not be mainstream financial products,” and warning against “deepening the connection between cryptocurrencies and the broader financial system.”

On February 7, the Federal Reserve pushed new rules to the Federal Register, banning state member banks from holding any amount of crypto assets as principal, and claimed that “issuing tokens on open, public, or decentralized networks… is likely inconsistent with safe and sound banking practices.”

On May 2, the Biden administration proposed a 30% electricity tax on Bitcoin mining—marking the first targeted tax on a legitimate activity.

The logic behind these choke point measures is clear: controlling financial flows can stifle industry development.

Industry Dilemmas Under Policy Pressure

Brian Morgenstern, head of public policy at Bitcoin mining giant Riot Platforms, pointed out that these policy updates clearly indicate an intent: “The White House proposed taxing Bitcoin mining companies’ electricity use—an overt attempt to control their legitimate activities they dislike. The only explanation is deep-seated bias against decentralization and hostility toward it.”

Senator Bill Hagerty, a member of the Senate Banking and Appropriations Committee, bluntly called this “Operation Choke Point 2.0”—“a coordinated effort by Biden’s financial regulators to de-bank the industry and cut off entrepreneurs’ access to capital, choking the domestic crypto economy.”

Hagerty noted that regulators seem to have fallen into a false narrative: “They believe crypto businesses are only for convenience or illegal activities, ignoring the innovation potential and opportunities to establish new businesses in the U.S.”

Why Bitcoin Advocates Should Care About Financial Nodes

A straightforward question is: why should Bitcoin, as a decentralized financial system designed to operate outside the legacy system, care about banks’ choke points?

The answer lies in the reality of legal constraints. Caitlin Long, founder of Custodia Bank, has long been advocating for the development of legal frameworks around crypto. She pointed out: “Without legal clarity on Bitcoin, the legal system could become an attack vector against Bitcoin users. We all operate under some legal system, and we should be aware of these legal attack vectors and work to address them in a supportive manner.”

Long’s Custodia Bank(, formerly Avanti), obtained a Wyoming banking charter in 2020, becoming a special purpose depository institution capable of holding Bitcoin and other cryptocurrencies for clients. But when applying for a Federal Reserve master account(—which would enable large transactions via FedWire—Custodia faced prolonged delays.

“Operation Choke Point 2.0 is real,” Long said. “Custodia learned about its existence through news leaks at the end of January. Journalists told us that all bank charter applicants with digital asset business models, including Custodia, were recently asked to withdraw pending applications. Some reporters even implied that the Federal Reserve’s vote on Custodia’s application was already a foregone conclusion.”

This is the core of the choke point strategy: by blocking legitimate companies’ access to financing channels, indirectly pushing the entire industry into the gray area.

Unintended Dark Forces

The counterproductive effects of this strategy are profound. When U.S. regulators suppress compliant domestic crypto firms, they are actually boosting the competitiveness of offshore platforms operating outside regulation.

The collapse of FTX proved this point. Although registered in the Caribbean, most of its business was outside U.S. regulation, attracting billions of dollars in customer funds. Restrictions on domestic crypto businesses in the U.S. create a vacuum that benefits unregulated entities like FTX.

Brian Morgenstern emphasized this paradox: “Bitcoin holders should care about Operation Choke Point 2.0 because some policymakers are trying to deprive us of the ability to participate in the Bitcoin network. Moreover, Bitcoin is different. It’s the oldest, most tested asset in this space, and perhaps the only one everyone agrees is a digital commodity. This means the cost of including it in any policy framework will be lower, and Bitcoin holders need to understand this.”

In other words: if compliant domestic enterprises are allowed to exist, platforms like FTX have no room to survive. Choke point policies, while harming legitimate industries, also pave the way for scammers.

Breaking the Stranglehold: Where Is the Exit?

To break this deadlock, action is needed on three levels.

First, education and communication. Many policymakers simply cannot distinguish between Bitcoin and other crypto assets. Morgenstern suggests: “Engage with your elected officials, help them understand that Bitcoin’s decentralized ledger technology is democratizing finance, enabling faster, cheaper transactions, and providing consumers with much-needed alternatives when the traditional financial system falters. It takes time, effort, and lots of communication, but we must work together to help our leaders realize how many votes and how much prosperity are at stake.”

Second, build compliant financial bridges. Long firmly believes that regulation and innovation are not mutually exclusive: “Native internet currencies already exist. They won’t be reinvented. If federal banking regulators want to control their impact on the traditional dollar banking system, they need to wake up—enabling compliant bridges benefits them. Otherwise, just like the internet disrupted other industries, it will bypass them, and they will face bigger problems.”

Third, political action. Senator Hagerty’s conclusion is clear: “This isn’t a problem for people to stand aside from. I encourage those who want to see digital assets thrive in the U.S. to raise their voices—whether at the ballot box or by contacting your legislators, urging them to support constructive policy proposals.”

Operation Choke Point 2.0 is not a distant technical issue but a core battle over Bitcoin’s future in the U.S. When financial nodes are forcibly shut down, the real choke point is in people’s minds—whether there are enough voices to shout for innovation and freedom.