How U.S. Financial Regulators Created a New Choke Point Strategy Against Bitcoin

The concept of controlling financial flows to restrict certain industries isn’t new to U.S. regulatory practice. Yet what emerged in the early 2020s suggests a coordinated return to these tactics, this time targeting Bitcoin and the broader digital asset ecosystem. Understanding this pattern—from its historical origins through today’s policy environment—reveals critical barriers facing Bitcoin adoption and the importance of regulatory clarity for the industry’s future.

The Choke Point Playbook: From Operation History to Contemporary Banking Restrictions

Nearly a decade before current Bitcoin debates, the U.S. Department of Justice implemented what became known as Operation Choke Point. Launched in the 2010s, the initiative targeted financial institutions as “bottlenecks” or choke points where the government could restrict access to banking services for entire categories of legal businesses deemed problematic by regulators.

The operation’s scope was expansive: ammunition sales, payday lending, telemarketing, adult services, and other industries faced systematic de-banking. Financial institutions were pressured to terminate relationships with entire business categories, regardless of whether individual companies within those sectors operated legally. The strategy generated substantial controversy, ultimately prompting federal investigations, multiple lawsuits, and criticism from across the political spectrum.

“The clandestine Operation Choke Point had more in common with a purge of ideological foes than a regulatory enforcement action,” wrote Frank Keating, former Oklahoma governor and Reagan-era DOJ official. The operation demonstrated that regulatory agencies possessed both the will and capability to reshape financial system access based on policy preferences rather than purely legal grounds.

By 2017, the Trump administration’s DOJ formally ended Operation Choke Point. The FDIC subsequently promised additional safeguards for account holders and examiner training. However, those familiar with regulatory patterns recognized that the underlying infrastructure enabling such financial restrictions remained intact.

Banking Collapse and Regulatory Consequences: 2023’s Critical Turning Point

Three years ago, the cryptocurrency banking landscape experienced dramatic upheaval. On March 8, 2023, Silvergate Bank—which had focused on crypto clients since 2013—announced its voluntary liquidation. Two days later, Silicon Valley Bank, holding substantial cryptocurrency industry deposits, was seized by California regulators in what became the second-largest bank failure in U.S. history.

Silicon Valley Bank faced a liquidity crisis as its cryptocurrency and tech-focused clients withdrew substantial deposits amid broader market pressures. The bank had accumulated significant unrealized losses on long-term securities holdings as Federal Reserve rate increases eroded their value. By March 9, 2023, approximately $42 billion had been withdrawn from the institution.

The cascade continued. On March 12, 2023, Signature Bank—which derived approximately 30% of its deposits from cryptocurrency businesses and held nearly $80 billion in uninsured deposits—faced a severe depositor run totaling over $10 billion in withdrawals. State and federal authorities intervened, placing Signature Bank under FDIC receivership. This marked the third-largest bank failure in U.S. history.

What distinguished the regulatory response was its apparent asymmetry. While authorities described their actions as necessary to “strengthen public confidence in our banking system,” subsequent developments revealed troubling selectivity. The New York State Department of Financial Services permitted Flagstar Bank to assume all Signature Bank deposits except those “related to the digital-asset banking businesses.” This distinction suggested regulatory targeting rather than systematic stability preservation.

Former Congressman and Signature Bank Board member Barney Frank directly addressed this bias. “I think part of what happened was that regulators wanted to send a very strong anti-crypto message,” he told CNBC. “We became the poster boy because there was no insolvency based on the fundamentals.” The Wall Street Journal’s editorial board concurred, stating: “This confirms Mr. Frank’s suspicions—and ours—that Signature’s seizure was motivated by regulators’ hostility toward crypto.”

Why Bitcoin Should Matter: Understanding the Choke Point Mechanism

For those who view Bitcoin as a technology designed to function outside traditional financial systems, regulatory access barriers might appear irrelevant. Yet the practical reality differs substantially. Legitimate participation in Bitcoin networks requires on-and-off ramps connecting to traditional financial infrastructure. When regulators systematically restrict banking services to cryptocurrency-focused businesses, they erect barriers affecting not just institutional adoption but retail accessibility.

Caitlin Long, founder of Custodia Bank, articulated this constraint clearly: “In the absence of legal clarity about Bitcoin, legal systems can become attack vectors on Bitcoiners.” Long’s institution obtained a special-purpose depository charter in Wyoming in 2020, enabling cryptocurrency custodial services. Yet despite securing state authorization, Custodia faced prolonged delays in obtaining a Federal Reserve master account—a critical infrastructure component enabling large-scale transactions.

Frustrated by regulatory obstruction, Custodia filed lawsuit against the Federal Reserve. In explaining the delay, Long revealed the pattern: “Custodia learned about Operation Choke Point 2.0’s existence in late January when press leaks indicated that all bank charter applicants at the Fed and OCC with digital assets in their business models, including Custodia, were recently asked to withdraw their applications.”

The Policy Environment: Explicit Anti-Bitcoin Positioning

Beyond banking sector pressure, federal agencies issued coordinated policy guidance. On January 3, 2023, the Federal Reserve, FDIC, and Office of the Comptroller of the Currency released a “Joint Statement on Crypto-Asset Risks to Banking Organizations,” highlighting vulnerabilities in the cryptocurrency sector and effectively discouraging financial institutions from supporting such businesses.

The Biden administration amplified this messaging. On January 27, 2023, the White House released a “Roadmap to Mitigate Cryptocurrencies’ Risks,” explicitly warning against expanding cryptocurrency access to mainstream financial products. “Legislation should not greenlight mainstream institutions, like pension funds, to dive headlong into cryptocurrency markets,” the roadmap stated, reflecting skepticism toward Bitcoin integration into broader financial systems.

On February 7, 2023, the Federal Reserve issued additional rules “presumptively prohibiting” state member banks from holding crypto assets as principal and declaring that issuing tokens on public or decentralized networks was “highly likely inconsistent with safe and sound banking practices.”

The most aggressive proposal came from the Biden administration in May 2023: a Digital Asset Mining Energy excise tax imposing a 30% levy on electricity consumed by cryptocurrency mining operations. Proponents framed this as environmental compensation; critics recognized it as targeted punishment for a legal industry.

Brian Morgenstern, head of public policy at Riot Platforms (one of America’s largest public Bitcoin miners), identified the pattern explicitly: “The White House has proposed an excise tax on electricity use by Bitcoin mining businesses specifically—an admitted attempt to control legal activity they do not like, in the name of environmental protection. The only explanation for such inexplicable behavior is deep-rooted bias in favor of the status quo and against decentralization.”

The Choke Point’s Collateral Consequences

Regulatory exclusion from banking infrastructure doesn’t eliminate Bitcoin or cryptocurrency activity—it redirects it offshore. The collapse of cryptocurrency exchange FTX illustrated this dynamic. FTX’s operators exploited regulatory gaps by basing operations on Caribbean islands while primarily serving U.S. customers outside direct regulatory jurisdiction. As FTX defrauded customers of billions of dollars, the platform thrived precisely because U.S. regulatory pressure against domestic cryptocurrency businesses had limited competition and alternative platforms.

Paradoxically, by creating regulatory barriers against domestic Bitcoin and cryptocurrency businesses, authorities may inadvertently advantage offshore alternatives and bad actors operating beyond regulatory oversight. Businesses attempting to operate legitimately within U.S. frameworks face simultaneous de-banking and competitive disadvantage against unregulated competitors.

U.S. Senator Bill Hagerty, member of the Senate Banking and Appropriations committees, framed the issue directly: “‘Operation Choke Point 2.0’ refers to the coordinated effort by the Biden administration’s financial regulators to suffocate our domestic crypto economy by de-banking the industry and severing entrepreneurs from the capital necessary to invest here in America. It appears that financial regulators have bought into the false narrative that cryptocurrency-focused businesses solely exist to facilitate illicit activities.”

Distinguishing Bitcoin: A Path Forward

Some industry advocates argue that intensive regulatory education could help distinguish Bitcoin—recognized by most observers as a digital commodity—from other cryptocurrencies carrying greater speculative risk. Bitcoin’s unique position as the oldest, most extensively tested, and least controversial digital asset potentially positions it more favorably within regulatory frameworks than altcoins or experimental tokens.

“Bitcoiners need to understand that Bitcoin is different,” Morgenstern emphasized. “It is perhaps the only asset in this space that everyone agrees is a digital commodity. That means the on-ramp for inclusion into any policy frameworks will have less friction inherently.”

Breaking regulatory choke points requires sustained engagement from Bitcoin advocates. “Engage with your elected officials,” Morgenstern encouraged, urging Bitcoin supporters to educate policymakers about decentralized finance’s benefits: “democratizing finance, creating faster and cheaper transactions and providing much-needed optionality for consumers at a time when the centralized finance system is experiencing distress.”

For those officials recognizing regulatory bias as counterproductive to innovation, continued advocacy remains essential. As Senator Hagerty concluded: “This isn’t an issue where people can afford to be on the sidelines anymore. I encourage those who want to see digital assets flourish in the United States to make your voice heard, whether that is at the ballot box or by contacting your lawmakers and urging them to support constructive policy proposals.”

Relieving Financial Access Barriers: Toward Regulatory Balance

The emerging pattern suggests that Bitcoin and cryptocurrency policy faces a critical juncture. Current regulatory approaches risk pushing legitimate innovation offshore while simultaneously disadvantaging domestic businesses and consumers seeking legal access to digital assets. The alternative—fostering regulatory frameworks that accommodate Bitcoin while maintaining safety and consumer protections—requires policymakers to distinguish between speculative cryptocurrency projects and Bitcoin’s unique position as mature, decentralized financial infrastructure.

Long’s perspective captured the stakes: “Internet-native money exists. It won’t be uninvented. If federal bank regulators have a prayer of controlling its impact on the traditional U.S. dollar banking system, they will wake up and realize it’s in their interest to enable regulatory-compliant bridges. Otherwise, the internet will go around them and they will face even bigger problems down the road.”

The choke point strategy that defined one regulatory era may have merely evolved, adopting new targets and methods while maintaining the same fundamental approach of restricting financial system access. Recognizing this pattern—and actively addressing it—has become essential for Bitcoin’s continued development and mainstream adoption in the United States.