What is 'debanking,' and why is the crypto industry upset?

(NewsNation) — From Elon Musk's Trump-appointed government position to Jeff Bezos' $1 million Trump inauguration donation, the tech and political worlds have been colliding in Washington.

Now, what's stirring the pot is "debanking" and its effect on crypto companies.

What is debanking?

Within the banking industry, "debanking" refers to the process of a bank closing a customer's account that it deems poses a financial, legal, regulatory or reputational risk. One example would be the closing of an account that is used in money laundering.

The term gained popularity recently after venture capitalist Marc Andreessen spoke about it on "The Joe Rogan Experience" podcast late last month, accusing Democrats of pressuring banks to refuse business with crypto start-ups.

Sharing with more than 10 million listeners, Andreessen said roughly 30 founders of crypto and other companies had been quietly debanked. Tesla founder Elon Musk posted about debanking to his social media platform X, which prompted crypto executives to chime in.

"Can confirm this is true," wrote Coinbase co-founder and CEO Brian Armstrong on X. "It was one of the most unethical and un-American things that happened in the Biden administration, and my guess is we'll find Elizabeth Warren's fingerprints all over it (Biden himself was probably unaware)."

Coinbase, a digital currency company, sued the FDIC and the Securities and Exchange Commission in June over claims that financial regulators blocked the crypto industry from accessing banking services.

Is there a political motive?

Crypto companies need traditional financial infrastructure to operate as a multibillion-dollar industry, so they turn to banks to open accounts for things like paying employees and converting digital currency into dollars.

“Providing services to crypto companies exposes traditional commercial banks to reputational, regulatory and financial risks,” said Eswar Prasad, an economist at Cornell University, to The New York Times. “Banks are typically averse to taking on clients who have dubious financial standing.”

While that may be true, some argue politics could be at play.

"Since members of the political class like and dislike certain political activities, industries or both, banks are loathe to open accounts for entities seen as out of favor with the political class," said senior economic adviser John Tamny in Forbes.

"Crypto hasn’t always been a favorite of politicians," Tamny said, "and so long as politicians are picking favorites, banks will protect their shareholders by not getting on the bad side of politicians."