White House Cools On Crypto, And Custodia Bank Rejected By The Fed

The Biden administration released a new roadmap to “mitigate cryptocurrencies’ risks” on January 27th, and the same day the Board of Governors of the Federal Reserve System announced the decision to deny cryptocurrency-friendly Custodia Bank membership in the Federal Reserve System. Later in that same afternoon, American Banker reported that the Federal Reserve Bank of Kansas City also denied Custodia Bank’s application for a master account.

While the events were certainly a disappointment for shareholders of Custodia Bank, they were widely expected and there are glimmers of hope for digital asset market participants. The decisions for Custodia were specific to the bank, and not rejections of cryptocurrency. The tone from the White House blog appears to be more cautious than previous communications, but the positive message was that they “have spent the past year identifying the risks of cryptocurrencies and acting to mitigate them.” This approach is unlikely to satisfy cryptocurrency proponents who want clear leadership within the crypto markets so that it can continue to grow within the regulatory structure that makes the U.S. the world leader in financial markets.