In an effort to ‘bridge the gap between mainstream finance and the rapidly growing world of cryptocurrency, Coinbase has asked US banking regulators to issue clear rules that would allow banks to offer cryptocurrency services. News sources have relayed that the company’s pitch is for regulatory clarity so innovation can happen and banks and crypto companies can work together.
Coinbase’s Letter to Regulators
From the information at ‘hand, on February 4, 2025, Coinbase issued a letter to the Office of the Comptroller of the Currency, the Federal Reserve, and the Federal Deposit Insurance Corporation, requesting confirmation that banks are permitted to directly offer crypto custody and execution services or through an established third-party service provider. As per officials, Coinbase intends to remove all barriers against banks partnering with crypto custody and execution service providers.
Faryar Shirzad, Coinbase’s chief policy officer, also had a bone to pick: stating that instead of issuing clear and lasting rules through a notice and comment process, banking regulators have issued vague and sometimes contradictory “guidance” leaving crypto custody and execution service providers and banks in regulatory limbo.
The Legal Angle
A legal analysis commissioned by Coinbase from three top law firms concluded that the current crypto banking restrictions are illegal. They are based on misunderstood regulations, not actual statutes. The firms argued that only clear rules – not guidance – can provide lasting legal clarity to withstand political shifts. And it’s that stability that will create a strong and modern financial system for all Americans.
The Broader Industry Context
Coinbase’s ask ‘comes at a time when the cryptocurrency industry is looking for a clear regulatory framework to thrive. So far, reports have it that US banks have kept their distance from companies with ties to digital assets due to a lack of clarity around regulation. However often, that hesitation leaves crypto companies without banking services, hindering the need to operate and grow.
Notably, the crypto industry has become proactive, seeking political support for itself. To that end, the industry has donated big to political candidates friendly to cryptocurrency regulation. The hope is that that support will bring clearer regulations and a friendlier environment for crypto businesses to operate in.
Regulator’s Stance
This isn’t the first time regulators – including the FDIC – have denied allegations of trying to push crypto firms out of the traditional financial system. The new leadership at the US Securities and Exchange Commission reportedly created a task force last month to propose a broad set of regulations on crypto assets, presumably clarifying things and bringing together regulators and the crypto industry closer.
The Way Forward
The outcome of how Coinbase’s appeal plays out is yet to be seen. The exchange’s move shows the ongoing tension between innovation in the financial markets and regulatory oversight. The more the crypto industry grows, the more urgent it becomes to have clear and consistent rules to show how traditional finance can work with crypto actors to create the future of finance.
Stay updated with Deythere as we’re available around the clock, providing you with updated information about the state of the crypto world.
FAQs
1. What is Coinbase asking the regulators to confirm to the banks in the US?
To confirm that banks can offer crypto custody and execution services directly or through established third parties. And to clarify which obstacles to prevent a bank from partnering with third-party crypto custody and execution service providers.
2. Why are current restrictions on crypto banking services considered unlawful by some legal experts?
Because there are restrictions, according to a legal analysis shared with Coinbase, based on misinterpreted rules – not actual statute, legal experts argue that only clear rules can provide lasting legal clarity that outlives political shifts.
3. How have US banks approached partnership opportunities with crypto companies?
US banks have traditionally been wary of digital asset companies due to lack of clarity in regulation. This wariness has mostly resulted to crypto companies being deprived of basic banking services which hinders their operations and growth.
4. What has the crypto industry done to push for clearer regulations?
The crypto industry has courted political support and given big to political candidates it perceives will be friendly to cryptocurrency regulation. That support aims to bring clearer regulations that are supportive for crypto businesses.
5. How do the calls for clearer crypto regulations go with the regulators themselves?
The new leadership at the US Securities and Exchange Commission created a task force to propose a broader framework of regulation on crypto assets. This would be more clear and bring closer together regulators and the crypto industry.
Glossary
- OCC (Office of the Comptroller of the Currency): US federal agency that supervises and regulates national banks and federal savings associations.
- FDIC (Federal Deposit Insurance Corporation): US government agency that provides deposit insurance to depositors of all US commercial banks and savings institutions.
- Crypto Custody Services: Various services basically mean holding and securing cryptocurrencies for the clients.
- Execution Services: Services that enable asset purchase and sales orders, including those of cryptocurrencies, on behalf of clients.
- Regulatory Clarity: Clear rules and guidelines from regulators.
References
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