OCC clears banks for crypto, blockchain, and stablecoin businesses (#324)
Also, the battle of titans: USDC v. Tether
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This week:
OCC clears banks for crypto, blockchain, and stablecoin businesses
What we’re reading: USDC v. Tether
Stuff happens
1. OCC clears banks for crypto, blockchain, and stablecoin businesses
Banks are now free to engage in crypto and stablecoin related businesses as long as they do so in a safe and sound manner, according to a new Interpretive Letter from the OCC (via Ron Oliveira).
There’s three key dates to this story.
The first is July 22, 2020, when the OCC published Interpretive Letter #1170, which first gave banks the explicit greenlight to work directly with crypto and crypto customers. The letter is quite clear:
This letter responds to your request regarding the authority of a national bank to provide cryptocurrency custody services for customers. For the reasons discussed below, we conclude a national bank may provide these cryptocurrency custody services on behalf of customers, including by holding the unique cryptographic keys associated with cryptocurrency.1 This letter also reaffirms the OCC’s position that national banks may provide permissible banking services to any lawful business they choose, including cryptocurrency businesses, so long as they effectively manage the risks and comply with applicable law.2
And why not? The role of banks is to properly manage risk around money and financial instruments. As such, they should be well positioned to manage risk around crypto, which is essentially a new form of money and finance, especially relative to other institutions. This would later be followed with Interpretive Letters 1172 and 1174, which opened the door for stablecoin services and blockchain technology, respectively.
Fast forward to January 2023 and the winds have suddenly shifted after the collapse of FTX in November. Now, the top banking regulators, the OCC, the FDIC, and the Fed, collectively believe that crypto is too novel and dangerous for banks to play with, which they outline in a joint statement:
Based on the agencies’ current understanding and experience to date, the agencies believe that issuing or holding as principal crypto-assets that are issued, stored, or transferred on an open, public, and/or decentralized network, or similar system is highly likely to be inconsistent with safe and sound banking practices.
Which brings us back to today. First, President Trump, on a Sunday, names the 5 crypto assets he’d like to employ for a U.S. strategic reserve. Later that week, he signs the concept of the latter into existence with a new Executive Order. Riding that momentum, the administration holds its first Digital Assets Summit, during which new Treasury Secretary Scott Bessent said the following:
David, today, when President Trump has signed the executive order to establish the Strategic Bitcoin Reserve and stockpile, we’re going to position the United States as a leader among nations in the digital assets strategy. It’s important for the United States to recognize this fact and get ahead of the other nations in the digital age.
We applaud the President’s direction to use digital assets already under possession of the nation, and we are going to establish this Bitcoin Reserve. We will use this authority to augment the assets side of the United States balance sheet. As I’ve said many times, President Trump is creating assets for the American people while most past presidents have created debt, and a large part of this asset program can be in digital assets.
We are going to end the regulatory weaponization against digital assets. The Biden administration’s actions did nothing other than punish innovators, and that all of you have made it here today is really a testament to your fortitude.
Much of Treasury’s responsibility in this order relates to the tax code and determinations around risk weightings, and I’m here to assure you that we are going to work with the controller of the currency, the IRS, and we’re going to rescind and amend all applicable previous guidance, and we are going to put a lot of thought into the stable coin regime, and as President Trump has directed, we are going to keep the U.S. the dominant reserve currency in the world, and we will use stable coins to do that.
Soon after, the OCC publishes Interpretive Letter 1183, which “rescinds the requirement for OCC-supervised institutions to receive supervisory nonobjection and demonstrate that they have adequate controls in place before they can engage in these cryptocurrency activities.”
And here’s Acting Comptroller of the Currency Rodney E. Hood:
“The OCC expects banks to have the same strong risk management controls in place to support novel bank activities as they do for traditional ones. Today’s action will reduce the burden on banks to engage in crypto-related activities and ensure that these bank activities are treated consistently by the OCC, regardless of the underlying technology. I will continue to work diligently to ensure regulations are effective and not excessive, while maintaining a strong federal banking system.”
Game on.
(As Ron noted, currently, “this is only the OCC, the FRB and FDIC status is unchanged.”)
Relevant:
Via Ron Oliveira—'Debanking' In Crosshairs Of GOP Bill On Reputational Risk - Law360
The Forces That Flipped Trump From Crypto Critic to ‘Crypto President’
XRP, ADA Price News: Ripple, Cardano Tokens Fall Deeper Than Bitcoin After Trump Summit
The Polarizing Crypto Executive Who Wooed His Way Into Trump’s Orbit
Under Trump, U.S. Increasingly Pulls Back From Crypto Crackdown
2. What we’re reading—The battle of titans: USDC v. Tether
Here’s the WSJ:
Giancarlo Devasini, one of the world’s newest billionaires, leads a reclusive life in this Alpine town. He stays in a modest apartment by the lake, strolls the cobbled streets with a black hoodie pulled over his head—and rages about the American rival he believes is trying to kill his business.
Devasini is the main owner of Tether, whose eponymous digital dollar is an indispensable part of the cryptocurrency industry. Tether’s centrality has earned Devasini tremendous wealth and vast influence over the sector, and the support of a top ally of President Trump.
Critics say Tether has become the tool of choice for criminal groups to spirit money around the globe.
Out to disrupt his business empire is Devasini’s almost perfect foil, Jeremy Allaire, founder of Tether’s archrival, Circle, which issues its own so-called stablecoin, called USD Coin, or USDC. Allaire, a suit-wearing executive as comfortable in Davos as he is on Wall Street or the halls of Congress, is running a campaign to regulate Tether out of existence.
Devasini has told business associates that Circle is bad-mouthing Tether to politicians and whipping up enforcement actions against his company. They said that in his view, Circle wants to turn the industry into just another regulated corner of finance, while Devasini wants crypto to stay true to its swashbuckling, antiestablishment roots.
“Circle will not win if Tether is alive,” Devasini told an associate several months ago.
The fight is over the future of the $3 trillion crypto industry. The pro-crypto Trump administration is meant to usher in a golden age for the sector, and on Sunday, Trump announced the formation of a crypto strategic reserve. But in reality, the call to bring crypto into the mainstream through government regulation has opened up a kill-or-be-killed battle among crypto players. Laws, while expected to be broadly friendly to the industry, could be devastating for individual players such as Tether if they are on the wrong side of new rules.
Allaire has encouraged the U.S. and other governments to pass laws that ban the use of Tether’s tokens, which are issued offshore. One such law fully took effect in the European Union in December, and similar bills have been introduced in the U.S.
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