Crypto Banking Problem: Regulators Keep Digital Assets Out of US Banking System

• U.S. Regulators are trying to keep crypto assets away from banks and the traditional financial system.
• The Federal Reserve Board recently rejected a crypto-focused Custodia Bank’s application for membership.
• The Biden Administration has urged Congress to step up its efforts in regulating the crypto industry and avoid allowing mainstream institutions to invest in cryptocurrency markets.

Crypto’s Banking Problem: Industry Needs Access but US Regulators Keep Digital Assets at Bay

Regulatory Actions Aiming to Ring-fence Crypto from U.S. Banking System

Federal banking regulators seem to have free rein over crypto’s U.S. destiny – and they’re using their power to push it out of banking. Several recent regulatory actions – including the Federal Reserve Board’s (FRB) January decision to reject crypto-focused Custodia Bank’s application for membership – indicate federal regulators are coordinating on policy that aims to ring-fence crypto from the broader U.S. banking system, experts say.

The FRB Rejects Custodia’s Membership Application

The FRB’s rejection of Custodia’s membership application came hours after the Biden administration put out a statement urging Congress to “step up its efforts” to regulate the crypto industry and, when crafting new legislation, avoid “greenlighting mainstream institutions … to dive headlong into cryptocurrency markets,” which the statement warned would be a “grave mistake” that “deepens ties between cryptocurrencies and the broader financial system.” Shortly after Custodia’s membership application was denied, the Federal Reserve Bank of Kansas City dealt another blow to the crypto bank, denying its long-pending application for a master account.

The White House Urges Stricter Regulations on Crypto Industry

Less than two weeks after Custodia’s double-whammy rejections and the White House’s warning against crypto contagion, fresh rumors about more crypto banking crackdowns have begun to circulate among insiders in Washington D.C., signaling further clampdowns are likely on their way as regulators continue their concerted effort against digital assets gaining access into U.S.-regulated financial systems..

Crypto’s Fate in Hands of Regulators

Crypto can’t become what many of its proponents want it to be without banks, but U.S regulators are circling wagons around banking system they oversee which is only getting wider as Federal Reserve and other agencies turn away firms trying link with traditional financial system..


In conclusion, it is evident that US regulators are determined not allow any type of digital asset access into its regulated banking system due its fear of contagion risk posed by cryptocurrency investments . As such , it is likely that current trend will continue unless there is some sort of legislative or policy changes that could potentially reverse this situation .