The Biden administration released a new roadmap to “mitigate cryptocurrencies’ risks” on January 27th, and the same day the Board of Governors of the Federal Reserve System announced the decision to deny cryptocurrency-friendly Custodia Bank membership in the Federal Reserve System. Later in that same afternoon, American Banker reported that the Federal Reserve Bank of Kansas City also denied Custodia Bank’s application for a master account.
While the events were certainly a disappointment for shareholders of Custodia Bank, they were widely expected and there are glimmers of hope for digital asset market participants. The decisions for Custodia were specific to the bank, and not rejections of cryptocurrency. The tone from the White House blog appears to be more cautious than previous communications, but the positive message was that they “have spent the past year identifying the risks of cryptocurrencies and acting to mitigate them.” This approach is unlikely to satisfy cryptocurrency proponents who want clear leadership within the crypto markets so that it can continue to grow within the regulatory structure that makes the U.S. the world leader in financial markets.
White House Blog Does Not Designate Leader
The administration wrote that their “focus is on continuing to ensure that cryptocurrencies cannot undermine financial stability, to protect investors, and to hold bad actors accountable.” These are laudable and non-controversial goals, but the conflicts will arise because there will continue to be considerable disagreements on the methods used to accomplish those objectives.
The administration has instructed agencies to “ramp up enforcement where appropriate and issue new guidance where needed.” This is a half-measure. There will be few that disagree that new guidance is necessary, and that enforcement against bad actors is a good thing. The important question left unanswered is who is in charge?