When Banking Access Becomes A Regulatory Weapon: Decoding The New Financial Exclusion Of Bitcoin

The collapse of Silicon Valley Bank on March 10, 2023, was officially the second-largest bank failure in U.S. history. But beneath the economic mechanics of deposit withdrawals and unrealized losses lay a pattern that many in the cryptocurrency industry recognized with alarm: a systemic effort to sever Bitcoin and digital asset businesses from the regulated financial system.

Within three days, two more crypto-friendly institutions faced seizure. Signature Bank, which held approximately 30% of its deposits from cryptocurrency businesses and maintained $79.5 billion in uninsured deposits, was closed by New York regulators on March 12. The bank had been operating with only about 5% of its total assets in cash—well below the industry average of 13%—leaving it uniquely vulnerable to liquidity crises. Combined, these bank runs eliminated critical infrastructure that Bitcoin entrepreneurs and custody providers depended upon.

Yet what startled industry observers most wasn’t the bank failures themselves, but the apparent selectivity with which regulators approached them. The Wall Street Journal’s editorial board noted that when the FDIC announced Flagstar Bank would assume Signature’s deposits, it explicitly excluded those “related to the digital-asset banking businesses.” This carve-out contradicted the stated goal of maintaining financial system stability—suggesting instead that regulatory hostility toward cryptocurrency was driving policy decisions.

The Historical Shadow: Operation Choke Point Returns

To understand why this moment felt familiar to Bitcoin advocates, you have to rewind to 2013.

That year, U.S. Department of Justice official Eric Bresnickat explained to a gathering that federal authorities were targeting “bottlenecks, or choke-points, in the fraud committed by so many merchants.” The strategy involved pressuring financial institutions and payment processors to deny services to entire categories of legal businesses—from ammunition sales to payday loans to tobacco retailers. This covert campaign, later christened “Operation Choke Point,” cast an impossibly wide net, often sweeping up legitimate enterprises alongside genuinely problematic ones.

By 2018, the program had drawn such fierce backlash—including lawsuits and federal investigations into DOJ and FDIC conduct—that the Trump administration formally declared it dead. Former Oklahoma Governor Frank Keating, who worked in the DOJ during the Reagan era, had written in The Hill that Operation Choke Point “had more in common with a purge of ideological foes than a regulatory enforcement action.”

But many argue that between 2023 and now, a successor strategy has quietly reemerged, this time with Bitcoin in the crosshairs.

A Coordinated Squeeze: The Policy Architecture

The machinery of financial exclusion operates through multiple levers simultaneously.

In January 2023, the Federal Reserve, FDIC, and Office of the Comptroller of the Currency issued a joint statement linking crypto-asset risks to banking organizations and effectively warning institutions away from the sector. A month later, the Biden administration released a “Roadmap to Mitigate Cryptocurrencies’ Risks,” explicitly opposing legislation that would deepen ties between cryptocurrencies and mainstream financial infrastructure—a direct rejection of institutional participation.

That February, the Federal Reserve pushed a rule clarifying it would “presumptively prohibit” state member banks from holding crypto assets as principal and that issuing tokens on decentralized networks would be “inconsistent with safe and sound banking practices.” By May, the administration proposed a Digital Asset Mining Energy excise tax set at 30% on electricity consumption—targeting Bitcoin mining operations specifically rather than cryptocurrency generally.

These weren’t scattered regulations. They formed a coherent message: the financial system would be closed to Bitcoin businesses.

Brian Morgenstern, head of public policy at Riot Platforms—one of America’s largest publicly traded Bitcoin miners—saw the pattern clearly. “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,” he told Bitcoin Magazine. “The only explanation for such inexplicable behavior is deep-rooted bias in favor of the status quo and against decentralization.”

The Custody Problem: How Financial Exclusion Metastasizes

For those trying to build legitimate bridges between Bitcoin and the legacy financial system, regulatory obstruction has become paralyzing.

Custodia Bank obtained a special-purpose depository institution charter in Wyoming in 2020—the first step toward becoming a regulated custodian for Bitcoin and other digital assets. But when Custodia applied for a master account with the Federal Reserve to access the FedWire network, the approval process dragged on indefinitely. Caitlin Long, Custodia’s founder, later revealed what happened: “Custodia learned about Operation Choke Point 2.0’s existence in late January when press leaks hit and reporters started calling to say they learned 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 pending applications.”

Long filed a lawsuit against the Federal Reserve. But the deeper problem wasn’t just one institution’s delayed application—it was the message being sent to the entire banking sector: engage with Bitcoin at your regulatory peril.

“In the absence of legal clarity about Bitcoin, legal systems can become attack vectors on Bitcoiners,” Long explained. “All of us live under legal regimes of some sort, and we should be aware of legal attack vectors and work toward resolving them in an enabling way.”

The Irony: How De-Banking Fuels The Very Risks Regulators Claim To Fear

Here’s where the policy backfires: by starving regulated Bitcoin businesses of banking access, regulators inadvertently incentivize offshore alternatives.

When U.S. regulators began tightening the screws, cryptocurrency exchange FTX—headquartered in the Bahamas and deliberately operating beyond the jurisdiction of American regulators—flourished. FTX’s founders exploited the regulatory arbitrage, ultimately stealing billions in customer funds with impunity. The company’s collapse became Exhibit A for those arguing that cryptocurrency businesses needed financial prohibition. But the opposite conclusion was more accurate: because FTX operated outside regulatory reach, authorities had no visibility into its criminal operations.

“Internet-native money exists. It won’t be uninvented,” Long countered. “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, just as with other industries that the internet has disrupted, the internet will just go around them and they will face even bigger problems down the road.”

Domestic Bitcoin businesses—those attempting to comply with regulations and pay taxes—are being crushed while unregulated offshore platforms thrive. It’s a policy outcome that achieves the opposite of its stated intention.

Bitcoin’s Unique Vulnerability: Why General Cryptocurrency Restrictions Hit Bitcoin Hardest

U.S. Senator Bill Hagerty, a member of the Senate banking and appropriations committees, articulated the asymmetry: “It appears that financial regulators have bought into the false narrative that cryptocurrency-focused businesses solely exist to facilitate or conduct illicit activities, and they seem blind to the opportunities for the potential innovations and new businesses that can be built.”

But there’s another dimension to consider. Many cryptocurrencies are speculative tokens with limited fundamental differences from one another. Bitcoin, however, possesses unique properties: it’s the oldest asset in the space, the most battle-tested, and—crucially—one that even regulators implicitly recognize as a commodity rather than a security.

“Bitcoin is different. It is not only the oldest and most tested asset in this space, it is perhaps the only one that everyone agrees is a digital commodity,” Morgenstern argued. “That means the on-ramp for inclusion into any policy frameworks will have less friction inherently, and Bitcoiners need to understand this.”

Yet that potential advantage is being squandered. By lumping Bitcoin together with all other cryptocurrencies under a unified regulatory assault, policymakers are collapsing distinctions that matter. The result: Bitcoin entrepreneurs and custody providers face the same financial exclusion as projects with far murkier fundamentals.

What Comes Next: Advocacy As Infrastructure

For those who believe this regulatory campaign is misguided—or worse, motivated by bias against Bitcoin’s core value proposition of decentralization—the path forward requires active engagement.

“Engage with your elected officials,” Morgenstern urged. “Help them understand that Bitcoin’s decentralized ledger technology is 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. This will take time, effort and a lot of communication, but we must work together to help our leaders appreciate how many votes and how much prosperity is at stake.”

Senator Hagerty was even more direct: “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.”

The financial choke point tightens incrementally—through policy statements, rule clarifications, and enforcement actions that each seem reasonable in isolation. Cumulatively, they construct a wall between Bitcoin and the regulated financial system. Whether that wall proves durable depends on whether the Bitcoin community mobilizes to push back. The precedent from Operation Choke Point suggests that sustained pressure and public advocacy can eventually force policy reversal. But first, people have to understand what’s actually happening.

The current banking crisis revealed it starkly: when regulators can determine which businesses deserve financial access, Bitcoin’s existence in the mainstream becomes conditional rather than guaranteed. And in a system where regulatory approval is the price of admission, decentralization itself becomes the target.