A federal judge has ordered the Federal Deposit Insurance Corporation (FDIC) to fix its redaction mess in letters sent to banks over crypto services. Judge Reyes said the FDIC showed a “lack of good-faith effort” in complying with a court mandate.
According to him, the agency blanketed nearly everything with black ink, leaving out only the basics like “articles or prepositions.”
The letters, uncovered through a Freedom of Information Act (FOIA) request tied to Coinbase, expose what many in the community have long suspected: federal regulators tried to block traditional banks from engaging with crypto firms.
One letter from 2022 revealed the FDIC asking a bank to “pause all crypto asset-related activity” until further notice, promising to clarify its expectations at an unspecified later date.
Coinbase fights back against regulatory pressure
Coinbase, through a lawsuit filed in June, compelled the FDIC to release 23 of these heavily redacted letters. The revelations have added fuel to the fire for Coinbase Chief Legal Officer Paul Grewal, who has been outspoken about what he sees as an attack on the crypto industry.
“The FDIC undertook a very concerted effort to deny regulated institutions, primarily banks, the right to offer legal services to the crypto community,” he said. “If it’s crypto today, it could be any other business tomorrow.”
This alleged campaign, often referred to as “Operation Choke Point 2.0,” echoes an earlier regulatory crackdown under the Obama administration.
The original Operation Choke Point targeted industries like payday lending and firearms by pressuring banks to sever ties with them. The updated version, according to crypto insiders, is directed squarely at them.
The letters show the FDIC wasn’t working in isolation. “One thing you can tell from the letters is that this wasn’t just one rogue bank supervisor going off half-cocked,” Grewal explained. “These were multiple regional offices from all across the country, all executing the same playbook.”
That playbook reportedly involved discouraging banks from offering crypto services and, if the banks didn’t comply, bombarding them with audit requests and compliance demands.
“If you’re a regulated bank just trying to do your job, you’re basically told that offering crypto services will bring down the full weight of the federal government,” Grewal said. “You’re going to respond to that negative incentive.”
Custodia Bank CEO Caitlin Long, a frequent critic of the Federal Reserve and FDIC, backed these claims. Long pointed out that many of the FDIC’s letters were also copied to the Federal Reserve, suggesting coordination between regulators.
She labeled the letters “functionally cease-and-desist orders” and likened the so-called “pause” to Nixon’s infamous 1971 suspension of gold convertibility. “A three-year delay isn’t a mere ‘pause,’” she said.
Political changes could change the game for crypto
The timing of these revelations comes as President-elect Donald Trump prepares to take office, bringing a more crypto-friendly administration to Washington. Trump has already named crypto advocate Paul Atkins to lead the Securities and Exchange Commission (SEC), replacing outgoing Chair Gary Gensler.
Gensler, infamous in crypto circles for calling the industry a breeding ground for “hucksters and frauds,” will step down on January 20. Trump has also tapped David Sacks, a well-known investor and entrepreneur, as his “White House AI and Crypto Czar.”
Grewal expressed cautious optimism about the incoming administration’s approach. “We’re seeing nominees with a more balanced view of crypto. Nobody is in favor of unregulated crypto—certainly, Coinbase isn’t—but protecting consumers must be balanced against promoting American innovation.”
Meanwhile, Grewal plans to push for a court order that forces the FDIC to lift its redactions completely. The unredacted letters could reveal the names of banks and services that regulators targeted, bringing more transparency to what Coinbase and others describe as a coordinated campaign to stifle crypto.
FDIC, along with the Federal Reserve and the Office of the Comptroller of the Currency, has consistently denied discouraging banks from providing services to crypto companies.
In joint guidance issued in 2023, the agencies said that “banking organizations are neither prohibited nor discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation.”
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