On January 13, 2022, Acting Comptroller Michael J. Hsu Remarks shared remarks regarding Crypto with the British-American Business Transatlantic Finance Forum Executive Roundtable.

Crypto has rapidly gone mainstream.

  • Five years ago, the total market capitalization of all cryptocurrencies was around $100 billion. Today it is over $2 trillion.
  • Anyone with an internet connection can invest in over 12,000 different cryptocurrencies, purchase digital art and collectibles through non-fungible tokens (NFTs), and buy “property” in the metaverse.
  • Hundreds of organizations have emerged to provide wallet and custody services, to create new tokens, and to facilitate crypto trading.
  • Credit and debit card issuers are offering Bitcoin rewards programs and facilitating crypto payments.
  • Large corporations, like Tesla, PayPal, and Starbucks, are starting to accept cryptocurrency payments.
  • Several publicly traded companies now hold Bitcoin in their investment portfolios.
  • Crypto has also gone mainstream with consumers.
    • Sixteen percent of U.S. adults say that they have owned, traded, or used some form of cryptocurrency.
    • Notably, the underbanked and minorities have been especially interested in crypto.
      • One survey found that 37 percent of the underbanked indicated that they own cryptocurrency, compared to 10 percent of the fully banked.
      • A Harris poll reported that 18 percent of Blacks and 20 percent of Hispanics reportedly own crypto.
  • This mainstreaming of crypto has occurred despite regulatory and legal uncertainty, and a series of scams, hacks, and other disruptive events.

One major concern is the risk of a “run” on a cryptocurrency. Stablecoin issuers subject to bank regulation would give holders of those stablecoins confidence that those coins were as reliable and “money good” as bank deposits. Even if the tide were to go out, the reserves would be there, overseen and examined by bank supervisors, and potentially even backstopped by access to a central bank’s discount window to meet short term liquidity needs if warranted. There would be no need for any holders to redeem or even to worry about redeeming a bank-regulated stablecoin. Bank regulation would give credibility to the “stable” part of stablecoins.

Collaboration and coordination among regulators are necessary to keep up and respond effectively. The need for collaboration and coordination is particularly important with regards to large crypto intermediaries, which are increasingly operating globally and across a wide range of activities. The largest crypto firms and platform operators today have tens of millions of users and handle hundreds of billions of dollars of transactions every month.  Yet none is subject to comprehensive consolidated supervision where a single authority has a line of sight into the entirety of an intermediary’s activities. Large crypto intermediaries today may have multiple subsidiaries subject to different regulators, but no one regulator is able to understand how the firm as a whole operates, how much risk it is taking, and whether it is operating in a safe, sound, and fair manner. As large crypto intermediaries expand, engage in a wider range of activities and risk-taking, and deepen their interconnectedness with the traditional financial system, the risks from this lack of comprehensive consolidated supervision will increase, as will the need for interagency collaboration and coordination.

While the pace of innovation in crypto is exciting and the growth of the industry presents a host of opportunities for banks, the risks, the pace of change, and the lack of standards and controls in the crypto space suggest that a cautious and careful approach is warranted. The OCC, for instance, recently released an Interpretive Letter reminding banks that the permissibility of engaging in crypto activities is conditional on them demonstrating that they can do it safely and soundly.

Note:  On January 18, 2022, the OCC conditionally approved applications from Social Finance Inc. (SoFi) to create SoFi Bank, National Association (SoFi Bank, N.A.), as a full-service national bank headquartered in Cottonwood Heights, Utah. As part of the transaction, SoFi Bank, N.A. will acquire Golden Pacific Bank, National Association, a national bank insured by the Federal Deposit Insurance Corporation.

The bank will also provide a fully digital, mobile-first national lending platform for consumers across the country. The conditions imposed require specific capital contributions, adherence to an Operating Agreement, and confirmation that the resulting bank will not engage in any crypto-asset activities or services.