Federal Reserve Revamps Bank Crypto Rules, Opening New Channels for Digital Asset Trading

Reason to trust Strict editorial policy that focuses on accuracy, relevance, and impartiality Created by industry experts and meticulously reviewed The highest standards in reporting and publishing How Our News is Made Strict editorial policy that focuses on accuracy, relevance, and impartiality Ad discliamer Morbi pretium leo et nisl aliquam mollis. Quisque arcu lorem, ultricies quis pellentesque nec, ullamcorper eu odio. The U.S. Federal Reserve has taken a notable step in reshaping how banks under its supervision can engage with crypto, reversing guidance introduced in 2023 that had sharply limited such activities. Related Reading XRP Risks Double-Top Crash Toward $0.40, Peter Brandt Warns 13 hours ago

The decision reflects a broader reassessment inside the central bank about how regulation should adapt to financial innovation, especially as digital assets continue to intersect with traditional banking infrastructure.

Under the earlier framework, uninsured state-chartered banks were required to follow the same constraints as federally insured institutions in order to remain under Federal Reserve supervision. That approach effectively barred some crypto banks from accessing core payment systems or Federal Reserve membership.

BTC"s price trends to the downside on the daily chart. Source: BTCUSD on Tradingview What the Policy Shift Changes for Banks

The new guidance establishes a formal pathway for both insured and uninsured banks supervised by the Federal Reserve to pursue certain innovative activities, including those related to cryptocurrencies.

Institutions will still be required to meet supervisory and risk-management standards, but they will no longer be automatically excluded based on their business models.

For uninsured banks, the implications are significant. Access to Federal Reserve membership would allow direct settlement through central bank payment systems rather than reliance on intermediary banks.

This idea could lower operational frictions for crypto custody, settlement, and related services, potentially expanding the role of banks in digital asset markets without changing existing safety and soundness expectations. Custodia Case Highlights Regulatory Tensions

The policy reversal has renewed attention on Custodia Bank, a crypto-focused institution whose application for a Federal Reserve master account was denied in part due to the now-rescinded guidance.

Custodia CEO Caitlin Long has argued that the 2023 policy effectively blocked lawful access to the Fed’s infrastructure and welcomed its withdrawal as a correction of past regulatory overreach.

Not all policymakers agree. Federal Reserve Governor Michael Barr dissented from the decision, warning that loosening the framework could undermine a level competitive playing field and encourage regulatory arbitrage.

Michael Barr’s position highlights the ongoing debate within regulatory circles over how to strike a balance between innovation and financial stability.r Broader Implications for Crypto Markets

While the Fed’s move does not directly change how cryptocurrencies such as Bitcoin or Ethereum trade, it may influence market structure over time. Easier access for banks could support deeper institutional participation, greater liquidity, and expanded custody and settlement options. Related Reading Ethereum Risks Slide To $2,000 If December Closes Below This Level: Analyst 16 hours ago

For now, the shift signals a more flexible regulatory posture, one that acknowledges the rapid evolution of digital asset markets and the banks that seek to serve them.

Cover image from ChatGPT, BTCUSD chart from Tradingview