Are US regulators about to get tough on crypto?

This dropped in our inbox a little over an hour ago, courtesy of the Fed (our emphasis):

Throughout 2022, the [agencies that regulate the financial system] plan to provide greater clarity on whether certain activities related to crypto-assets conducted by banking organisations are legally permissible, and expectations for safety and soundness, consumer protection, and compliance with existing laws and regulations related to:

• Crypto-asset safekeeping and traditional custody services.

• Ancillary custody services.

• Facilitation of customer purchases and sales of crypto-assets.

• Loans collateralized by crypto-assets.

• Issuance and distribution of stablecoins.

• Activities involving the holding of crypto-assets on balance sheet.

The agencies also will evaluate the application of bank capital and liquidity standards to cryptoassets for activities involving U.S. banking organizations and will continue to engage with the Basel Committee on Banking Supervision on its consultative process in this area.

As far as we’re aware this is the first attempt by the US’s banking regulators – a group which includes not only the Fed, but the Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency – to crack down on crypto.

It comes after China launched its own bid to curtail activity in the sector earlier this year. While China’s ban, which declared all activities related to crypto trading illegal, had a big impact on the price of the major cryptocurrencies, trading in bitcoin and ethereum has barely budged on the back of this announcement.

That’s not totally surprising, given that this is a statement of intent to look into whether rules need to be made as opposed to actual rules. It also strikes us as unlikely that the US agencies will be quite as aggressive as their Chinese counterparts. Nor will they be as quick – that it’s taken this long for US agencies to wake up to the need that crypto may indeed pose a threat to financial activity speaks volumes.

Still, as we’ve long argued, other states are likely follow China’s lead when it comes to challenging private sector dominance of the digital currency space. Whether that be by issuing their own state-backed tokens, or clamping down on crypto through regulation. Investors and lenders would do well to pay at least some attention to what the agencies are planning, as meek as their actions so far seem.


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