In a few months, the tide changed completely regarding cryptocurrency in the United States.
Under the Biden Administration, the Federal Deposit Insurance Corp (FDIC) was one of the biggest opponents to crypto. This was the entity that implemented, to a large degree, Operation Chokepoint 2.0.
This was the program where the FDIC went to commercial banks and pressured them to close accounts for companies involved in crypto. It essentially de-banked these firms, removing them from the existing monetary system.
The FDIC went from being an adversary of crypto to becoming one of its allies. We now see clarification on crypto activities that the regulator approves.
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This is going to be the year that banks get involved with crypto. It is a move that extends beyond investment banks.
Due to the actions taken by the FDIC, commercial banks are finding an entryway to the crypto realm. They are going to provide services to customers, something that was previously prohibited. The need to get approval from the FDIC is now removed.
We are seeing similar actions taken by the Office of the Comptroller of the Currency (OCC), another bank regulator.
Earlier this month, the OCC updated its position through Interpretive Letter 1183, establishing a formal pathway for federally chartered banks and savings associations to participate in specific cryptocurrency functions. These include offering custodial services, managing stablecoin operations, and engaging with distributed ledger systems. According to figures published by the OCC, more than 1,000 institutions fell under its supervision in 2024.
Here we see another world opening up to banks. Since the President's Working Group is pushing for the opening up of crypto, it is likely we see all the regulators working in lockstep. The Federal Reserve already stated the banks are capable of assessing risk, hence no need for prohibition.
Could we see the day when crypto is stored in a bank? This sounds absurd to the average crypto advocate (not your keys, not your coins) but we have to remember the general public is not at this level. Ease of use is something that is required for the masses.
I wrote about how regulatory clarity in the United States regarding stablecoins is the only thing stopping commercial banks from entering that sector.
This will be resolved this year.
The OCC decision says that banks can manage stablecoin operations. To me, this reads like "be an issuer of stablecoins". Bank of America is already on record as moving ahead with this with passage of the law.
What this means is that payments can be made using stablecoins. For example, imagine being able to send USDC to your landlord for rent. This would only require the wallet address of the individual at the bank. Since it was be part of the account, even a novice will not shy away.
In other words, the balance would show up in the account the same as legal tender. We see this with platforms such as Coinbase where one can have both US dollars and USDC. The difference is that the USDC has to be swapped for dollars before moving to a bank.
Under the new scenario, one could move USDC from Coinbase to Bank of America. Of course, it is likely that BOA would want its stablecoin used. Perhaps Coinbase adds these to its platform.
How does this change things?
The ability to move USDC, as an example, takes a few seconds to 10 minutes (depending upon the chain). To move US dollars from Coinbase to a bank account takes 1-3 days. This is why the ability to engage with distributed ledger systems is huge.
As I think about this, the onramps to crypto could explode. We will have to see how this is constructed but a bank account that has USDC in it could, presumably, send the token to an external wallet. This means the ability to go from cash to USDC to a wallet to swap into BTC.
There is another option.
Since Bitcoin is not being viewed as a security, it is possible that a commercial bank might be able to custody Bitcoin. The ability to go from fiat to BTC could also be possible. That said, I am not certain this will be allowed.
Either way, we can see the tentacles expanding. Of course, the same intermediaries are putting themselves right at the gate.
Hence why there is a hybrid system forming.
