What is the impact of the Federal Reserve's "Suffocation Point Action 2.0" on the crypto market?

On April 25, The Federal Reserve (FED) announced a major decision: to revoke the regulatory guidelines issued in 2022 regarding banks' encryption assets and dollar token businesses, abolish the relevant "no objection" procedures from 2023, and withdraw from the previously released policy statement on the risks associated with encryption asset businesses in cooperation with the Federal Deposit Insurance Corporation (FDIC) and the OCC.

Stifling Action 2.0 on the Marginalization of the Crypto Industry

"Choke Point 2.0" refers to a series of banking regulatory policies during the Biden administration in the cryptocurrency industry. This term originates from the "Choke Point" action during the Obama era, which refers to the regulatory goal of pressuring banks to cut off financial services to specific industries.

In the encryption market, the Stifling Point Action 2.0 generally refers to the period between 2022 and 2023, during which major financial regulators in the United States—The Federal Reserve (FED), FDIC, and OCC—strongly discouraged banks from engaging in activities related to crypto assets through a series of guidance and policy statements, indirectly limiting the connection between crypto companies and the traditional banking system.

It all started in 2022 when The Federal Reserve (FED) issued a regulatory letter requiring state member banks to provide prior notice before engaging in encryption asset activities. This may seem like a procedural requirement, but it significantly raised the threshold for banks entering the encryption field.

By early 2023, regulatory efforts further intensified. The Federal Reserve (FED), FDIC, and OCC jointly issued a statement clearly indicating that issuing or holding encryption assets on public, decentralized networks "is highly likely to be inconsistent with safe and sound banking practices." In the same year, regulators also required banks to obtain prior "no objection" permission from regulatory agencies when engaging in dollar token (i.e., stablecoin) business. This process is not only complicated and time-consuming but also gives regulators veto power.

As a result, many people refer to this wave of regulatory pressure as "Suffocation Point Action 2.0." Nic Carter, the former leading encryption asset analyst at Fidelity Investments, described this series of actions in an in-depth analysis as "a precise and extensive crackdown on the encryption industry through the banking system."

He pointed out that the regulators' goal is to cut off the connection between crypto companies and the fiat currency system by making it more difficult for banks to serve the encryption industry. This not only restricts the account opening and payment channels for crypto companies but also severely impacts the fiat inflow and outflow channels for stablecoin issuers and exchanges. Some crypto companies even face the risk of "completely losing banking services," and the liquidity of stablecoins and the operations of exchanges are therefore threatened.

Related Reading: "A Comprehensive Analysis of 'De-banking': The Triple Game of Compliance, Risk, and Politics", "Is the U.S. Initiating the 'Choke Point Operation'? Plans to Marginalize the Crypto Industry"

FTX Collapse: The Catalyst of Regulatory Pressure

The choking point action 2.0 is closely related to the collapse of the FTX exchange in November 2022. The FTX collapse caused clients to lose billions of dollars, and market confidence plummeted. The crypto credit crisis of 2022 did not have a significant impact on traditional finance, but regulators clearly wanted to prevent potential issues proactively. Thus, the regulatory system limited banks' exposure to the crypto industry to prevent risks from spreading to the banking system.

Banks that are friendly to encryption naturally become the primary targets of regulation. SilverGate.io and Signature were among the few banks willing to serve crypto clients at the time, thus enduring significant pressure. In December 2022, Senators Elizabeth Warren, John Kennedy, and Roger Marshall jointly wrote to SilverGate.io, criticizing its failure to detect suspicious activities related to FTX and its affiliated company Alameda Research.

SilverGate.io subsequently faced a bank run triggered by the collapse of FTX, with its stock price plummeting from a high of $160 in March 2022 to $11.55 in January 2023. Signature announced a reduction of its encryption deposits from $23 billion to $10 billion and completely exited the stablecoin business. Another bank serving crypto clients, Metropolitan Commercial, also announced the closure of its crypto business in January 2023.

Shift in Banking Regulation Under Trump

In 2025, with Trump returning to the White House, the regulatory environment for cryptocurrency in the United States underwent significant changes. On March 7, the White House held its first cryptocurrency summit, during which the Office of the Comptroller of the Currency (OCC) issued a series of interpretative documents allowing national banks to provide services such as cryptocurrency custody, stablecoin reserves, and participation in blockchain nodes without the need for special approvals. This overturned the restrictive guidance from the Biden administration that required banks to consult with regulators in advance, and revoked the interpretive letter No. 1179 from 2021.

OCC Chief Auditor Hu De stated: "Digital assets should and must become a part of the U.S. economy." The new policy allows banks to securely store private keys for clients, hold stablecoin reserves pegged 1:1 to the dollar, and serve as nodes to validate blockchain transactions, providing flexibility for banks to deeply integrate into the digital asset space.

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The OCC's shift may be closely related to Trump's commitments. At this year's White House cryptocurrency summit, Trump stated: "Some people are suffering greatly; what they are doing is ridiculous... This will all end soon." He criticized Operation Choke Point 2.0 for "forcing banks to close accounts for cryptocurrency businesses, weaponizing the government against the entire industry."

On April 17, Powell further clarified the direction of regulatory easing in a speech at the Chicago Economic Club, stating that there is "room for relaxation" in the current cryptocurrency regulatory policies targeting banking institutions. He acknowledged the mainstreaming trend of cryptocurrencies in recent years, pointing out that regulators had taken a cautious stance due to "a series of explosions and fraud incidents," but the market has fundamentally changed, necessitating the establishment of a clear regulatory framework for stablecoins to signal support for innovation.

Related reading: "What Positive Signals Did The Federal Reserve's Powell Release for the Cryptocurrency Industry?"

Today, the Federal Reserve officially revoked the guidelines related to the Stifling Point Action 2.0, allowing banks not to report for encryption business, with related activities monitored through regular regulatory procedures. In line with the Trump administration's commitment to abolish the "exclusion of encryption businesses from banking services" policy, the investigation by the House Oversight Committee and documents disclosed by the FDIC have also promoted policy transparency.

The next regulatory good news for the encryption market?

Since 2025, the crypto market has been filled with positive news. Following the SEC's confirmation of various altcoin ETF applications, the return of traditional crypto market makers, the repeal of DeFi broker rules, the withdrawal of a series of crypto litigation bills, and Trump's personal appointment of a new pro-crypto chairman of the SEC, there is now more good news from the banking regulatory side. The Federal Reserve has announced the repeal of the Stifling Point Action 2.0, marking the end of a three-year period of high-pressure regulation between banks and the crypto market.

The most direct manifestation of the good news is that the threshold for banks to serve the encryption industry has been significantly lowered, and legal risks have greatly decreased. More banks may provide accounts, payment, and custody services for encryption enterprises. In addition, the fiat currency channels for stablecoin issuers and exchanges will be smoother as a result.

More importantly, the Trump administration prioritized crypto-friendly policies, and Powell's affirmation of the regulatory framework for stablecoins injected clear expectations into the market. These intense positive signals may further attract more traditional financial institutions into the market, boosting market liquidity and enhancing investor confidence.