FED: Banks can trade cryptocurrencies

Fed without alternatives
  • According to the Federal Reserve, commercial financial entities can provide services with cryptocurrencies.
  • The Bank for International Settlements, which monitors central banks, has approved commercial banks so that within their tier 1 capital, 1%, up to 2%, is managed in cryptocurrencies.

Recently, the Federal Reserve Banks conglomerate, FED, announced that all commercial banks and financial system entities under their supervision are allowed to offer cryptocurrency services to their customers.

“Banking organizations are not prohibited or discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation,” they added.

However, they make a call for attention commenting that:

“Based on the agencies’ current understanding and experience to date, the agencies believe that issuing or holding primary cryptographic assets that are issued, stored, or transferred on an open, public, and/or decentralized network or similar system is highly likely is inconsistent with safe and sound banking practices.”

In this case, owning an asset implies the possession of private keys. But if there is a third party guarding, such as the financial technology company Revolut, it is presumed that it is the latter that actually owns the asset, and not the bank, for the mere exercise of custody.

Banks are free to provide encryption services, but they must consider certain standards that provide security and robustness, just as they do with traditional assets.

In practice, the BIS, Bank for International Settlements, which monitors central banks, has approved commercial banks so that within their tier 1 capital, 1%, up to 2%, is managed in cryptocurrencies. If this technology becomes a stablecoin, then, according to BIS, the percentage of use of cryptocurrencies would expand.

These statements open the door for what would be safe joint work between traditional financial institutions and the cryptocurrency system. Commercial banks would be on par with challenger banks that operate with the cryptosystem.

Cash-settled Bitcoin futures have been allowed. Bitcoin will continue to grow and cover more space. This being the case, it is likely that the traditional banking system will adopt a more friendly and neutral stance with the cryptocurrency market.