The Federal Reserve may boost crypto bank oversight.

The Federal Reserve may boost crypto bank oversight.

The Federal Reserve of the United States has launched a brand-new effort to expand its influence in the domain of blockchain technology and cryptocurrency. This action suggests a more comprehensive role, going beyond monetary policy alone.

The central bank has announced, as of the 8th of August, its plan to “oversee innovative endeavors within the banks it is responsible for.”

The new program will involve a variety of measures such as the formation of tech-focused collaborations with non-banking companies to offer financial services, the management of custody, trading, or lending services backed by cryptocurrency assets, and the transformation of securities into digital tokens. These actions aim to offer financial services, and you can locate the details in the paper that outlines the program specifics.

As the cryptocurrency industry has grown in significance and value, its connections to the traditional banking system, regulated by the Federal Reserve, have become closer. This new announcement by the agency acknowledges the importance of cryptocurrencies; nevertheless, it is yet unclear whether the initiative will promote or inhibit the industry’s efforts to acquire mainstream recognition.

Stablecoin Rules

The Federal Reserve also defined a means for state member banks to acquire authorization for specific projects utilizing tokens related to national currencies and developed using distributed ledger technology. The document released by the Federal Reserve outlined this technique.

Bank must follow this protocol to inform the Fed about its intended activity and manage various risks. These risks can include operational obstacles, concerns regarding cybersecurity, liquidity issues, and possibly illegal financial activities.

The Federal Reserve, after it has received this notification, will effectively make a decision as to whether or not it will allow the intended attempt to move further.

The agency’s communication expands upon a policy statement made in January, which highlighted that both uninsured and insured banks will face the same limits on actions, including operations related to cryptocurrency assets. This communication from the agency is an expansion of that statement.

Effects on Industry

On various social media platforms, members of the cryptocurrency community have been having discussions to determine whether or not the recent declaration made by the Federal Reserve is a positive development, a detrimental influence, or any combination of the two. Depending on the specific project or token being considered, their opinion frequently changes.

Prominent investor Nic Carter, who recently wrote a substantial piece about the Biden Administration’s crackdown on the bitcoin business, views the announcement by the Federal Reserve in a negative light. He sees it as a sign that there may be a decrease in the future.

According to his point of view, the Federal Reserve intends to do these things in order to discourage innovation and risk-taking, inhibit fintech companies that are collecting greater market share by serving riskier clients, and create impediments that could make it more difficult for newcomers to enter the industry.

Carter is also aware that the position taken by the Federal Reserve regarding the creation of stablecoins by banks effectively renders it unfeasible to use public blockchains for the purpose of distributing these tokens.

He compared this circumstance to the analogy of saying, “Banks can dispense physical cash through ATMs, but they must continuously provide the Federal Reserve with information about the individuals holding those banknotes.” He referred to the requirement for banks to provide the Federal Reserve with information about individuals holding physical cash.

Some are more positive.

According to Avi Felman, principal at Golden Tree, an asset management company, this step indicates a significant stride in the direction of stablecoin issuance and the growing integration of crypto infrastructure into our financial system. Felman made this comment in response to a question about the significance of the move. When it comes to Bitcoin, he saw that authority figures have adopted a noticeably different attitude in recent times.


About Ylleza Jashari

Senior student pursuing a degree in Security Studies at Rochester Institute of Technology. In my role as a Content Writer at Walletor, my primary objective is to develop informative content that effectively educates all Walletor users on the most up-to-date insights pertaining to financial transactions, digital wallets, and the broader cryptocurrency industry.

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