Marc Andreessen made headlines recently when he brought up the issue of “debanking” on the Joe Rogan podcast, claiming that the U.S. government was “terrorizing” crypto companies with it. Long a buzzword that has circulated the DeFi community, normal people were likely left scratching their heads as to what Andreessen was on about. To make things more confusing, the venture capitalist blamed this mysterious phenomenon for the death of NFTs.
“Remember the crypto thing [where] everyone got excited [about] NFTs and all that stuff, and then it just stopped?” Andreessen asked Rogan. “The reason it stopped is because basically every crypto founder, every crypto startup, they either got debanked personally and forced out of the industry, or their company got debanked, and so it couldn’t keep operating, or they got prosecuted, charged or they got threatened with being charged.”
If you’re still confused, let me help you out: Roughly translated, the concept of debanking involves a financial institution shutting down a person or organization’s bank account, often without explanation or much notice. As a16z’s crypto blog puts it, debanking is when “a law-abiding person or entity unexpectedly loses their banking relationship, potentially being kicked out of the banking system.” In essence, it’s financial cancel culture—a means by which banks can exclude companies that have been deemed undesirable. Many people claim the banks are doing this at the behest of federal regulators. Thus, crypto stans very much view it as their own distinct form of persecution—an example of draconian overreach by the “administrative state,” all in an effort to stamp out the hopeful promise of the financial mavericks of DeFi.
Concrete examples of debanking are numerous, though sometimes people have a good reason for being debanked. Several years ago an Australian woman who runs a business called Bitcoin Babe was debanked by droves of institutions and was placed on a terrorist watchlist. In a recent write-up by the New York Times, the newspaper spotlighted the experiences of Ryne Saxe, who operated a crypto firm called Eco. Saxe described his experience of being financially blacklisted as “like hell,” claiming that his company was “progressively debanked.”
Claims of “debanking” notably picked up steam during the Biden administration, when the government began cracking down on the crypto industry due to its blatant trends of fraud and criminality. Andreessen, of course, has self-interested motivations for wanting to stop this so-called scourge: his venture capital firm is deeply invested in the crypto industry and he needs it to be unshackled from sensible regulatory ordinances if it is to flourish. Andreessen Horowitz currently counts a long list of DeFi startups as core parts of its portfolio.
In his talk with Rogan, Andreessen even credited the “debanking” phenomenon with inspiring his vote for Donald Trump during the recent presidential election. “That’s why we supported Trump,” Andreessen told the podcast host. “We just can’t live in this world. We can’t live in a world where somebody starts a company that’s a completely legal thing and then they get, like, sanctioned.”
We should note the relative hilarity of Andreessen—a man who is reportedly worth close to $2 billion—claiming he can’t “live in this world” because there are impediments to investing in worthless memecoins or whatever. Anyway, beyond the ridiculousness of Andreessen’s own comments, there are some pretty obvious criticisms of the “debanking” paradigm that bear consideration.
First, banks refusing to open accounts for people or organizations is not a new phenomenon. Banks are very much allowed to do that. Thus, debanking is not a phenomenon that is limited to the cryptocurrency industry; indeed, it can apply to a wide variety of individuals and institutions, as one article on the trend from 2021 notes that it has been targeted at “energy companies, private prison operators, and gun manufacturers,” among various other alleged victims. This is something that many critics of debanking will openly admit. The particularly conspiratorial aspect of the crypto debanking discourse, however, is rooted in the accusation that the federal government is coercing banks to target DeFi, out of some weird bureaucratic vendetta rather than a sensible need to limit risk and fraud.
More evidence of this argument was platformed in a recent Fortune article penned by two notable crypto industry proponents. Nic Carter, a General Partner at blockchain-focused VC fund, and Austin Campbell, an adjunct professor at New York University’s Stern School of Business, argue that their industry has been harassed and subjected to a “pressure campaign” by federal regulators. The duo assert that these draconian bureaucrats “under the direction of President Joe Biden’s National Economic Council used their control over the banking sector to wage a coordinated crackdown on the domestic crypto industry.”
Carter and Campbell write this as if there’s some mystery about why the government would push banks to be cautious about their investment in crypto, though the reason why is obvious: crypto is sketchy, prone to wild swings in value, and too much institutional investment in it would seem to pose a structural risk to whichever bank was dumb enough to do so. Indeed, Carter and Campbell cite government documents that openly state as much. A publicly available FDIC guidance memo from January 2023, cited in the Fortune article, notes that “business models that are concentrated in crypto-asset-related activities or have concentrated exposures to the crypto-asset sector raise significant safety and soundness concerns” and that “events of the past year have been marked by significant volatility and the exposure of vulnerabilities in the crypto-asset sector.”
The phrase “events of the past year” could easily be read as a reference to the implosion of the FTX exchange, which vaporized billions of dollars in customer funds and set off a chain reaction that destabilized much of the crypto industry. Indeed, late 2022 was characterized by over a dozen major bankruptcies in the crypto industry. In short: A broader observation that can be made is that complaints of debanking fit neatly within the DeFi crowd’s more general desire to play by different rules than the rest of us, and to operate in a domain where regulation and oversight hold no sway.
The crypto industry may not have much reason to cry over this phenomenon for much longer, however. Trump’s re-election (which was helped along by crypto money) ensures that such regulatory tyranny may not have much of an influence in the coming years.
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