The U.S. Federal Reserve is significantly changing its stance on cryptocurrencies. This week, it withdrew guidance issued in 2023 that limited how banks under Fed supervision, including uninsured institutions, could engage with digital assets. According to the Fed, both the financial system and regulatory understanding of crypto have evolved substantially over the past two years.

Why the Fed moved away from old rules

The 2023 guidance was based on the principle of “same activity, same risk, same regulation.” Uninsured banks were required to follow the same rules as federally insured institutions, effectively barring them from most crypto services.

In practice, this meant that banks focused on cryptocurrencies were excluded from Fed membership, significantly limiting innovation and market entry.

The Fed now acknowledges that this framework no longer reflects market realities and has become outdated.

New rules allow crypto with stricter risk controls

Scrapping the old guidance does not mean deregulation. The Fed introduced a new framework that allows both insured and uninsured state banks to pursue innovative activities, including cryptocurrencies, provided they meet strict risk management standards.

Vice Chair for Supervision Michelle Bowman said the goal is to maintain financial stability while ensuring the banking system remains modern and competitive.

Custodia Bank calls it a 180 degree shift

Caitlin Long, CEO of crypto focused Custodia Bank, welcomed the decision. Her bank previously failed to obtain a Fed master account, which provides direct access to central bank payment systems.

Long argues that the now withdrawn guidance was used to block Custodia’s application even before it formally took effect.

Internal disagreement at the Fed

The decision was not unanimous. Governor Michael Barr warned that the new approach could undermine a level playing field and encourage regulatory arbitrage.

Barr, who has criticized Operation Chokepoint 2.0, remains a supporter of strong oversight, particularly when it comes to stablecoins.

What this means for crypto and users

The move sends a clear message: the Fed no longer views cryptocurrencies solely as a risk, but as a legitimate area of financial innovation. Banks may now expand crypto services, while users could gain access to a broader range of regulated products.

Whether this shift leads to wider bank adoption remains to be seen, but the change in tone is undeniable.

Sources:

https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230127a.htm?utm_source=chatgpt.com

https://x.com/CaitlinLong_/status/2001404175721378197?s=20

https://www.federalreserve.gov/newsevents/pressreleases/bcreg20251217a.htm

https://www.federalreserve.gov/newsevents/pressreleases/barr-statement-20251217.htm

https://cointelegraph.com/news/us-fed-vice-chair-michael-barr-favors-hard-line-on-crypto-occ-acting-head-no-friendlier