Did the Fed just open Pandora's Box? It certainly feels that way. The recent withdrawal of crypto guidance for banks – the rescinding of those 2022 and 2023 supervisory letters, the backing away from joint statements with the FDIC and OCC – screams one thing: the potential for a regulatory rollback is now very real.

Is this really about “evolving risks” and “supporting innovation” as the Fed has stated? So, is this move intended to undermine public health for partisan purposes? It would lead to terrible outcomes for consumers and jeopardize the health of our financial system. I think it's the latter.

Innovation At What Cost Though?

Let's be blunt. Though seemingly progressive, the Fed’s actions will only encourage banks to engage in more reckless behavior. These are the same financial institutions that seem all too willing to embrace the crypto trend before fully weighing the risks. Remember the housing crisis of 2008? It was powered by that same deregulatory zeal and faith that would later, in large part, almost bring down the entire financial system – innovation, rah-rah, creativity. Are we just going to make the same mistake now with crypto?

Even if you find the ABA’s celebratory response encouraging, the details of it should still send shivers down your spine. They share our enthusiasm to get started providing digital asset products and services. They’re really stoked about getting rid of that annoying oversight! Their argument that this move will increase the ability of consumers to have safe access to these products through the banks they know and trust is, quite frankly, laughable. Trust isn’t just a matter of words, it is earned and not freely shared, particularly in the world of finance.

What about the scams? The rug pulls? The hacks? The fact that it’s a dumping ground for fraud, pure and simple? And we’re just supposed to take banks’ word for it that they’re going to protect consumers from these dangers. They’ve only recently been freed from regulatory shackles! Let's get real.

"Normal Supervision" - Is That Enough?

The Fed's shift to "normal supervision" sounds reassuring, doesn't it? What does that even mean, specifically, in the world of crypto? Regular oversight didn’t stop the collapse of FTX, Celsius, or Voyager. “Appropriate oversight” was apparently not enough to prevent millions of people from losing their life savings gambling on meme coins and risky DeFi protocols.

Regular supervision suggests that the current regulatory playbook is sufficient to deal with the special dangers crypto presents. It isn't. Crypto is an entirely new animal compared to the legacy financial system. It's decentralized, opaque, and largely unregulated. Trying to jam it into the existing regulatory box is a lost cause. Just as doable as squeezing a square peg through a round hole.

Follow the money. Who benefits from a crypto regulatory gold rush Certainly not the average consumer. The truth is that banks and crypto companies are the real winners here. They have an open door to ship high-risk, high-reward products, bypassing any consideration of consumer protection or financial stability.

  • 2022 Supervisory Letter: Required banks to notify the Fed before engaging in crypto activities. Now gone.
  • 2023 Supervisory Letter: Addressed state member bank engagement in dollar token activities. Also gone.
  • Joint Statements: Withdrawn from agreements with the FDIC and OCC regarding banks' crypto activities.

This feels like a political calculation. Unlike previous administrations, the current administration is actively trying to court the crypto industry. They are counting on this new approach as a recipe for an economic renaissance. But at what cost?

Who Benefits From Weaker Rules?

We’re going to need strong, clear regulations that protect consumers, prevent fraud, and confirm the safety and soundness of our financial system. The Fed’s recent decisions pretty clearly indicate that we’re moving in the wrong direction.

Perhaps it’s time for us to actively demand that same accountability from our new regulators and policymakers. We will be watching closely, because we don’t want to go back to the bad old days of the finance Wild West. In this market, the only rule can’t be buyer beware. The future of our financial system, and the financial stability of millions of Americans, hangs in the balance. Don't let them get away with this.

We need strong, clear regulations that protect consumers, prevent fraud, and ensure the stability of our financial system. The Fed's recent actions suggest that we're headed in exactly the wrong direction.

It's time to demand accountability from our regulators and policymakers. We need to make it clear that we won't tolerate a return to the Wild West of finance, where the only rule is caveat emptor. The future of our financial system, and the financial well-being of millions of Americans, depends on it. Don't let them get away with this.