The recent cancellation of the Federal Reserve's special supervision program for crypto assets provides new opportunities for both banks and the crypto industry.
Review of the Fed's Special Supervision Program
The special supervision program, initiated in 2023, arose during a banking crisis in the U.S. involving the collapse of banks such as Silicon Valley Bank and Signature Bank, closely tied to the crypto industry. The program aimed to enhance scrutiny of banks engaged in cryptocurrencies and fintech. While it didn’t outright ban banks from participating, it significantly increased compliance costs, leading to dissatisfaction among crypto firms.
Logic and Significance of the Program Cancellation
The Fed’s cancellation signifies a deeper understanding of the risks associated with crypto businesses. While previously viewed as a 'black box,' it’s now recognized that these risks can be managed with conventional regulatory tools. This reflects political shifts and the practical needs of banks to adapt to the growing crypto landscape.
Market Opportunities for the Industry
With the program's cancellation, capital inflows into the industry are expected to accelerate, as traditional investors can more easily engage with crypto assets. Banks may also offer new financial products, strengthening the relationship between crypto and traditional finance. However, it's essential to recognize that regulation will not fully recede, and policy changes could still arise.
The Fed's cancellation of the special supervision program marks a pivotal development for reducing uncertainty for crypto firms and increasing opportunities for banks to engage in the crypto market.
