FDIC Tells Banks to Pause Crypto Services, Coinbase Calls It Unconstitutional

Coinbase has unveiled that the Federal Deposit Insurance Corporation (FDIC) is urging banks to temporarily halt cryptocurrency-related activities. This revelation has sparked controversy, with critics drawing comparisons to the infamous “Operation Chokepoint.” Industry leaders, including Coinbase and Ripple, argue that the FDIC’s actions overstep constitutional boundaries and aim to stifle the crypto sector.

Coinbase’s Chief Legal Officer, Paul Grewal, disclosed on January 3 that the FDIC issued additional letters instructing banks to limit crypto services, including Bitcoin transactions and advanced crypto activities. Grewal highlighted the lack of transparency, stating, "FDIC magically found two more pause letters after claiming compliance with a court order." He called for congressional hearings to investigate these actions.

Between 2022 and 2023, the FDIC directed certain banks to suspend crypto services while the agency assessed risks and finalized guidelines. One letter specifically addressed concerns about Bitcoin transactions facilitated through third-party partnerships, urging banks to pause such activities until further regulatory instructions were issued. The letter stated, “At this time, the FDIC has not determined what filings will be necessary for a bank to engage in this type of activity.”

Ripple’s Chief Legal Officer, Stuart Alderoty, criticized the FDIC’s approach, claiming the letters were designed to discourage banks from engaging in crypto-related business. He emphasized the unusual tactic of directly addressing bank boards, interpreting it as a deliberate move to intimidate institutions. "These letters scream one message: shut down everything crypto-related ASAP," Alderoty said.

Coinbase CEO Brian Armstrong expressed confidence in the judiciary's ability to address what he described as unconstitutional actions. Armstrong stressed that regulatory agencies should enforce laws rather than create new ones, asserting, "The Constitution grants lawmaking powers solely to Congress."

The FDIC’s actions have revived memories of "Operation Chokepoint," where regulatory pressure indirectly targeted specific industries. Recent surveys reveal that crypto-focused firms face significant banking challenges, unlike industries such as real estate or private credit.

Attorney John Deaton called for a federal investigation, arguing that these measures go beyond regulatory overreach and pose a threat to free-market principles. "ChokePoint 2.0 is not just regulatory overreach. It’s a direct challenge to American free-market capitalism, which thrives on competition, innovation, and equal opportunity," Deaton stated.

As criticism mounts, Coinbase and other crypto leaders are gearing up for further legal battles, determined to counter what they view as unjust regulatory interference.