A new survey highlights an alarming trend: crypto hedge funds are struggling to access basic banking services. The findings, released by the Alternative Investment Management Association (AIMA) in its report The Debanking Dilemma, reveal that three-quarters of the 160 crypto hedge funds surveyed reported significant banking challenges over the past three years. In stark contrast, none of the 20 traditional hedge funds surveyed experienced similar issues.
This stark disparity raises questions about potential targeting of the cryptocurrency sector, sparking outrage and demands for clarity within the industry.
Operation Chokepoint 2.0 in Action
The term “Operation Chokepoint 2.0” has gained traction as crypto hedge funds and related businesses face growing barriers to financial services. This phenomenon draws parallels to the original “Operation Choke Point,” a controversial regulatory program initiated in 2013 by the U.S. Department of Justice.
The original Operation Choke Point aimed to limit banking access for industries deemed “high risk,” such as payday lenders and ammunition merchants. Though largely inactive by 2017, the regulatory strategy has seemingly been revived, this time targeting cryptocurrency.
According to a 2023 report by law firm Cooper & Kirk, the Office of the Comptroller of the Currency (OCC) initiated the first wave of Operation Chokepoint 2.0 in late 2021, issuing guidance that curtailed banks’ involvement with cryptocurrency businesses.
Industry Leaders Call for Transparency
The crypto industry is fighting back. Paul Grewal, Chief Legal Officer at Coinbase (NASDAQ:COIN), voiced his frustration on X, formerly Twitter, stating, “Why would three-quarters of crypto hedge funds report issues with basic banking services over three years when zero were reported by other hedge funds? We need answers, now.”
Coinbase, one of the largest cryptocurrency exchanges, has taken an active role in challenging these regulatory practices, calling for fair treatment and transparency.
A Divided Political Landscape
As regulatory pressures mount, the upcoming U.S. presidential election could play a pivotal role in determining the future of Operation Chokepoint 2.0. Pro-crypto voices, including Donald Trump, have vowed to end the practice if elected.
During his keynote at the Bitcoin Conference in July, Trump declared, “I will immediately shut down Operation Chokepoint 2.0. They want to choke you out of business, and we’re not going to let that happen.”
Meanwhile, the Biden administration continues to support enhanced oversight of the crypto sector, citing concerns over fraud, money laundering, and systemic risk.
The Road Ahead for Crypto Hedge Funds
The survey findings underscore the urgent need for dialogue between the crypto industry, regulators, and policymakers. Without access to reliable banking services, crypto hedge funds may face operational difficulties that hinder growth and innovation.
For crypto hedge funds, building relationships with alternative financial service providers and advocating for regulatory clarity may be key strategies to navigate these challenges. As the industry grows, the demand for equitable banking services remains a central concern.
The crypto industry’s ability to overcome these obstacles will likely depend on how effectively it can unify its voice to demand change and counter the effects of Operation Chokepoint 2.0.
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