On Aug. 8, the Federal Reserve elaborated that “novel activities” included complex, technology-driven partnerships with non-banks.
These partnerships provided banking services to customers and activities that involve cryptocurrencies and blockchain technology, it stated.
The Fed stated that its goal was to “foster the benefits of financial innovation while recognizing and appropriately addressing risks to ensure the safety and soundness of the banking system.”
The move is counter to those made by the Securities and Exchange Commission, which is on a mission to stifle the digital asset industry in America.
Additionally, the Federal Reserve Board provided more information on the process for state banks to follow before they engage in any activities involving stablecoins.
They would need to demonstrate to the central bank that they have “appropriate safeguards to conduct the activity safely and soundly.”
Partner at Moses Singer law firm, Howard Fischer, told Bloomberg, “The fear is that engagement with such volatile assets could put the traditional banking sector at risk,”
The move may impact banks in crypto-friendly states that are still overseen by the Fed.
Moreover, industry observers have highlighted potential dangers in the program. With Federal Reserve oversight, the central bank will have the power to freeze or reverse transactions it deems fraudulent or risky.
The program will give banks greater control over crypto on and off ramps and could lead to a total debanking of the industry in the U.S., according to some.
The move comes in the same week as payments giant PayPal announced its own stablecoin, PYUSD. This has already been lambasted by the crypto community for centralization and the fact that PayPal can freeze and reverse transactions.
Furthermore, Moody’s ratings agency has just downgraded ten American banks and put six larger ones on review for potential downgrades.
Crypto markets have gained 1.7% on the day to reach $1.22 trillion at the time of writing. The move keeps markets firmly within their five-month range-bound trading channel.
Bitcoin tapped $30K once again but failed to break resistance, falling back to $29,729 at the time of writing.
The rest of the market is up marginally, wiping out losses over the last week but remaining sideways.