Although a vocal group of pro-crypto influencers has blamed a government conspiracy they call “Operation Chokepoint 2.0” for de-banking crypto customers, further research has cast doubt on their claims.
Operation Chokepoint 2.0 is the name given to the idea that banks, under the direction of the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC), were deliberately cutting services to crypto-related businesses.
The operation allegedly takes its lead from the program launched by the Obama administration that saw banks strong-armed into denying services to a range of undesirable industries, including pornography and payday lenders.
This week, however, Yale researcher Steven Kelly and Federal Reserve in-house historian Jonathan Rose published findings that the once-$200 billion Silicon Valley Bank failed not because of government intervention but rather venture capital (VC) and crypto customers.
These venture capitalists — many heavily invested in crypto in addition to startup equities — also contributed to a decline in venture funding and depletion of cash reserves at Silicon Valley startups.
Indeed, overall returns for venture funds turned negative in the third quarter of 2022, and the IPO market was entirely stagnant at that time. Due to elevated cash burn levels by VC-funded companies struggling with a startup bear market, SVB lost $25 billion, or a stunning 12.5% of its customer deposits, over the last three quarters of 2022 — months before its collapse.
Read more: Congressional report says crypto didn’t cause bank runs — fear of exposure did
Had SVB wanted to avoid bankruptcy, it could have diversified its customer base away from the riskiest industries like VC and crypto in 2022 – not waiting until March 2023 to cry for a bailout.
According to the researchers, in the year prior to the March 9, 2023 bank run on SVB, the bank had irresponsibly eroded 17.5% of its deposit base — far worse than the banking industry average of just 3.1%.
With so many months of advance warning that SVB was focused on two industries experiencing their own drawdowns, it becomes harder to blame Operation Chokepoint 2.0 for SVB’s poor customer diversification.
