US Regulators Publish Crypto Warning

The last year has, unfortunately, been a trying period for the crypto industry. First, there was the crypto winter that has seen even the biggest assets in the market see a value decline. Then there were the collapses of major ecosystems like Terra which wiped out billions of dollars in market value. And to top it all off, there was the FTX collapse which also rocked the industry and cast a shadow of doubt around it.

Now, the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) in the United States are speaking out about the situation, publishing a crypto-focused warning on December 3, 2022. 

Details About the Warning 

It is worth noting that the statement put out by the three bodies is specifically targeted at banking organizations. In the statement, mention was made of the immense market volatility that took place last year and has cast some doubt on the stability of crypto assets. 

“The events of the past year have been marked by significant volatility and the exposure of vulnerabilities in the crypto-asset sector. These events highlight a number of key risks associated with crypto-assets and crypto-asset sector participants that banking organizations should be aware of,” the statement said. 

Some of the ‘risks’ that the statement highlighted included the risk of scams and fraud within the industry. This likely alludes to the rise of crypto scams that we have seen in recent years that have targeted all sorts of users and entities in the industry. It was also highlighted that there are ongoing legal disputes surrounding custody practices, redemptions, and ownership rights of cryptocurrency which creates uncertainty.

Misrepresentations on the part of crypto projects were also brought up, as were the volatility of crypto assets in general and the risks associated with stablecoins. Interestingly, the risks associated with blockchain networks such as lack of governance and standards were brought up as issues to be considered, among others.

One of the points stressed by the statement was that the risks associated with the crypto space should not be spread to the banking sector. As such, all the agencies involved will take a cautious approach to the crypto-related activities undertaken by the banks that they supervise. 

What This Means

It has been said before that beyond the financial costs of incidents like the FTX collapse, there is the blow to trust that cannot be entirely quantified in terms of money. This statement shows that regulators are watching and taking note of these occurrences and these could go on to shape crypto policy. 

One bright side of this statement is that it makes it clear that while caution will be applied, banks will not be banned from interacting with crypto assets. 

“Banking organizations are neither prohibited nor discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation. The agencies are continuing to assess whether or how current and proposed crypto-asset-related activities by banking organizations can be conducted in a manner that adequately addresses safety and soundness,” it says.