Mon. Dec 6th, 2021

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

Throughout 2022, the [agencies that regulate the financial system] plans to provide greater clarity on whether certain activities are related to crypto-assets carried out by banking organizations is legally permissible, en expectations for safety and reliability, consumer protection and compliance with existing laws and regulations related to:

• Conservation of crypto-assets and traditional preservation services.

• Additional conservation services.

• Facilitating customer purchases and sales of crypto assets.

• Loans guaranteed by crypto-assets.

• Issuance and distribution of stablecoins.

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

The agencies will also implement bank capital and liquidity standards to cryptocurrencies for activities involving US banking organizations and will continue to enter into discussions with the Basel Committee on Banking Supervision regarding its consultation process in this area.

As far as we are aware, this is the first attempt by US bank regulators – a group that includes not only the Fed but the Federal Deposit Insurance Corporation and Office of the Currency Controller – to suppress crypto.

This comes after China launched its own effort to limit activity in the sector earlier this year. While China’s ban, declaring all activities related to crypto-trading illegal, had a huge impact on the price of the major cryptocurrencies, trading in bitcoin and ethereum barely moved on the back of this announcement.

This is not entirely surprising, as it is a statement of intent to look at whether rules should be made as opposed to actual rules. It also seems unlikely to us that the US agencies will be quite as aggressive as their Chinese counterparts. Nor will they be so fast – that it has taken so long for US agencies to wake up to the need for crypto to pose a threat to financial activity, volumes say.

Still, as we have long argued, other states are likely to follow China’s lead when it comes to the challenging private sector dominance of the digital currency space. Whether it is by issuing their own state-supported tokens, or crypto by holding regulation. Investors and lenders will do well to pay at least some attention to what the agencies are planning, as gentle as their actions so far seem.

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