Former crypto-friendly bank Silvergate Bank likely would have survived had it not been forced into voluntary liquidation by United States regulators that were trying to “decapitate” the cryptocurrency industry, claims an industry executive.

“I believe Silvergate could have survived its drawdown — and was on a path to do so,” Nic Carter, a partner at blockchain-focused Castle Island Ventures, wrote in a Sept. 25 Pirate Wires article.

He cited Silvergate’s recent bankruptcy filings and conversations with sources revealed that the bank was told by Joe Biden’s administration that it must cap crypto deposits at 15% or face consequences.

For Carter, this information reinforced that “Operation Choke Point 2.0” is real — a term he coined in March 2023 to describe a rumored coordinated effort to discourage banks from holding crypto or banking crypto firms amid last year’s banking crisis. 

“The government’s desire to decapitate the domestic crypto industry through covert rulemaking aimed at crypto-focused banks both initiated and worsened the banking crisis of 2023, the largest since the great financial crisis in 2008.”

Digital asset companies rely heavily on banks to accept deposits, enable on-ramps for customers and pay expenses.

Signature Bank and Silicon Valley Bank — the former banking partner for venture capital firms Andreessen Horowitz and Pantera Capital — were two other crypto-friendly banks that shuttered early last year.

These banks faced “inordinate pressure” from the Federal Deposit Insurance Corporation and US Senators like Elizabeth Warren — who demanded details on its relationship with its former banking client, FTX, Carter wrote.

A Silvergate insider told Carter the firm had to comply with the 15% rule or surrender.

“They have eight million ways to shut us down, anyway they want. When they say you gotta do something, you do it. The caps were never publicly discussed or formally opposed as a rule, but when your primary regulator threatens you, you comply.”

Carter said Silvergate’s decision to voluntarily liquidate rather than entering FDIC receivership was also “suspicious” — something Carter found has only happened a handful of times over the last three decades.

“It’s truly a rare thing. In fact, a source told me that when Silvergate leadership expressed its intention to voluntarily liquidate the bank, their California regulator, having no experience with the procedure, was completely unsure of how to proceed.”

“How rarely banks choose voluntary liquidation is further evidence Silvergate was ultimately killed by regulatory mandate, not the bank run it suffered,” he said.

The balance sheets of crypto firms recovered strongly when the markets rebounded in the back half of 2023 and so far in 2024, which further led Carter to believe that Silvergate would have survived.

Source: Nic Carter

“If the [15 percent] limit hadn’t been imposed, Silvergate would be thriving right now,” a person familiar with the matter told Carter, which he agreed with.

Carter acknowledged that Silvergate wasn’t completely innocent — suggesting it could have tightened up its money laundering controls and identified FTX’s improper transfers much earlier.

“But that doesn’t mean it deserved to be harassed out of existence.”

Carter’s report comes Kamala Harris said she wants the US to “remain dominant” in blockchain, artificial intelligence and other nascent technology industries. 

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