Hurdles in Accessing Banking Services for Crypto Hedge Funds
A recent report by The Wall Street Journal revealed that around 120 hedge funds engaged in crypto faced challenges in accessing banking services over the past three years. This represents approximately 75% of the 160 hedge funds surveyed by the Alternative Investment Management Association (AIMA).
The survey highlighted that none of the 20 alternative investors in other asset classes, such as real estate and private credit, reported similar difficulties. The banking issues ranged from unclear communication to the outright termination of relationships.
Among the crypto hedge funds that encountered issues, just over half were explicitly informed by banks that their relationships would be terminated. However, the reasons for these decisions were often vague or non-existent. When explanations were provided, banks cited a desire to limit exposure to crypto clients or the industry.
John D’Agostino, head of institutional sales at Coinbase and an AIMA board member, noted that while all affected funds eventually found banking partners, these were often smaller or regional institutions.
Operation Chokepoint 2.0
The crypto industry has been abuzz with discussions about “Operation Chokepoint 2.0,” an alleged effort by the Joe Biden administration to suppress the crypto industry in the US by restricting access to banking services.
Recently, Coinbase chief legal officer Paul Grewal released letters from the Federal Deposit Insurance Corporation (FDIC) to banks in 2022, urging them to pause or cease all crypto-related activities. These documents, obtained through a Freedom of Information Act (FOIA) request, revealed a potential 15% deposit cap imposed on crypto-friendly banks, supporting the existence of Operation Chokepoint 2.0.
Custodia Bank CEO Caitlin Long and Austin Campbell, CEO of global digital payments company WSPN, echoed the sentiment that these letters demonstrate a coordinated effort to hinder the crypto industry in the US.