Banks Want to Crash the Bitcoin Party. Trump Is Opening the Door. — Barrons.com

Dow Jones Newswires

By Joe Light

The last time crypto collapsed, regulators celebrated that the country's biggest banks had few ties to Bitcoin and other digital assets, leaving them unscathed. Next time may be different.

After years of being stymied by the Biden administration, banks might soon get a green light from President Donald Trump and his top officials to start offering cryptocurrency services. Trump, who has launched his own token, is creating a pro-crypto government. Banks that were shut out of the industry are poised to join it, vying with firms like Coinbase Global, Robinhood Markets, and BlackRock for a piece of the crypto pie.

The Federal Deposit Insurance Corp. plans to revise bank guidelines for crypto, aiming to allow banks to embark on some crypto activities without getting regulatory permission first. Some banks have met with government officials to push for offering custody of crypto assets, along with "tokenized deposits" that could put some checking accounts on blockchains, according to a person familiar with the matter.

"If the rules come in and make it a real thing that you can actually do business with, you'll find that the banking system will come in hard on the transactional side of it," Bank of America CEO Brian Moynihan said in a CNBC interview at the World Economic Forum in Davos, Switzerland, describing crypto as "just another form of payment."

Banks aren't entirely shut out of the crypto world, but allowing them to offer far more services and put deposits on blockchains would be a stark departure from Biden's administration, which actively discouraged ties between banks and crypto. It would also be an about-face for independent regulators who have long worried about crypto's uses for illicit activities and potential to destabilize the financial system.

Every major banking regulator — independent entities in the federal government — has raised alarms. The Federal Reserve, the Office of the Comptroller of the Currency, and the FDIC in 2023 issued a joint statement saying crypto raised "significant safety and soundness concerns" for banks. The regulators also required banks to get permission before embarking on significant crypto projects. Now — at least for some activities — that approach is going out the window.

The push is moving forward despite Trump having not yet appointed permanent leaders for the regulators, which are supposed to operate independently from the administration. The FDIC has a five-member board, with Republican Travis Hill as acting chair. Biden holdover Michael Hsu runs the OCC, though he's expected to be replaced by Trump at any time. Changes might come slowest at the Fed Board, where Chair Jerome Powell's term lasts through 2026.

"The industry is working with policymakers to remove the guardrails in the banking system that kept banks out of crypto," said Mark Hays, an associate director at Americans for Financial Reform, a Wall Street watchdog that's been critical of the crypto industry.

Banks say they can put up safeguards, and they no longer want to be shut out of crypto services and underlying blockchain technology — arguing it could help them reduce their own costs, speed up payments, and generate new sources of revenue.

So far they have taken baby steps. JPMorgan Chase, for instance, launched "JPM Coin" in 2019, an internal token to settle payments between clients, though its volume pales in comparison to traditional transaction methods. Goldman Sachs Group last year said it planned to spin out a blockchain-based platform that could be used to tokenize and trade real-world assets, like real estate. Citigroup has experimented with Wellington Management and WisdomTree to tokenize private funds.

The Bank Policy Institute, an industry lobbying group, said banks are "ideal vehicles for exploring the benefits of new technology like blockchain," in a paper after the November election.

Even if big banks start delving more into crypto, it's unlikely to move the needle on their asset bases or financial results — which are far more tied to loan growth, net interest income, and balance sheets. But with few exceptions, banks have left lucrative businesses like brokerage services, custody, and dollar-tied tokens to upstarts like Coinbase, Robinhood, and Anchorage Digital.

The push by banks also stems from the wild success of spot-based Bitcoin exchange-traded funds. Launched about a year ago, the ETFs have swelled to about $120 billion in assets, earning fees for managers like BlackRock and Fidelity as well as the custodians of the underlying Bitcoin, like Coinbase.

Crypto firms, meanwhile, are encroaching on a core activity in banking: taking deposits, lending some out, and earning a yield on the reserves held against them. The way that works in crypto is with stablecoins — tokens pegged to the dollar that can be used in transactions, lent as collateral, and deposited in accounts that yield interest. The tokens collectively have a market value of more than $227 billion, earning considerable interest for companies like Coinbase, Circle Internet Financial, and Tether Holdings.

To compete with stablecoins, some banks this year met with senior FDIC officials to talk about potentially offering "tokenized deposits," among other things, according to people familiar with the matter.

Tokenized deposits are essentially tokens that represent traditional deposits in a checking or savings account and can be transferred almost instantly on a blockchain, the digital ledger underlying most crypto assets. Banks say can it can reduce their costs. Integrated with other blockchains, tokenized deposits can also be used more seamlessly for crypto trading, lending, and other activities.

The FDIC, under Hill, is considering making it easier for banks to offer custody services. And the FDIC is considering rescinding or reworking guidance that had required banks to get permission for crypto-related activities, instead offering upfront guidance on how banks can use the technology.

"We are actively reevaluating our supervisory approach to crypto-related activities," Hill said in a statement on Wednesday, adding that the agency sought to give "a pathway for institutions to engage in crypto- and blockchain-related activities while still adhering to safety and soundness principles."

Financial watchdogs say major safeguards will be needed to avoid a sequel to the crash of 2022 — when a wave of corporate crypto failures bled into the banking system, leading to the demise of Silvergate Bank and Signature Bank. In its autopsy report on Signature, the FDIC attributed its failure in part to its "strategy of rapid growth and expansion into the digital asset markets."

"Real people's money is at stake," said Shayna Olesiuk, director of banking policy at industry critic Better Markets, pointing to the failures of Silvergate and Signature.

Some financial-stability experts think it can be done safely, and argue that letting large banks into crypto might actually be positive. One reason Silvergate failed is because it had a disproportionate amount of crypto depositors and was known as a "crypto bank." When FTX collapsed, Silvergate depositors panicked, causing a run. That risk might be alleviated if more crypto deposits were held at bigger banks, constituting only a small part of their liabilities, says Steven Kelly, associate director of research at the Yale Program on Financial Stability.

"If the crypto industry can mature and the regulations around it can mature enough, that's a safer outcome than having institutions known as crypto banks," he says.

Banks, of course, are eager to tap the digital-asset profit pool as a new pro-crypto federal government takes shape. Trump signed an executive order to create a crypto "working group" to study pro-crypto policies, including the potential creation of a federal Bitcoin stockpile. The Securities and Exchange Commission now has its own crypto working group, led by Commissioner Hester Peirce, nicknamed the "Crypto Mom" for her pro-industry views.

Republicans in Congress want to move forward with bills that would establish rules for stablecoins and brokerages/exchanges like Coinbase. Republican lawmakers also sound sympathetic to claims by crypto executives that they had been "debanked," or denied basic banking services, merely because of the industry they worked in.

The Biden administration "was explicit about not wanting crypto to touch the banking system, period," said J.W. Verret, a law professor at George Mason University. With Republicans, "that war is over."

Write to Joe Light at joe.light@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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Sen. Warren takes a stand on crypto debanking and criticizes banks for closing accounts as issue heats up in Washington

The Block

U.S. lawmakers hashed out different approaches to debanking, as the issue over whether the crypto industry has been shut out by banks heats up in Washington.

Republicans have been leading the charge of concerns around crypto debanking, especially over the last several weeks with calls for investigations and hearings set by Republican leadership to dig into the issue.

A hearing on Wednesday in the Senate Banking Committee titled "Investigating the Real Impacts of Debanking in America" set the tone of concerns around debanking in crypto and generally.

"It is incredibly alarming and disheartening to hear stories about financial institutions cutting off services to digital asset firms, political figures and conservative-aligned businesses and individuals," said Senate Banking Committee Chair Tim Scott (R-S.C.) during the hearing.

The issue around crypto debanking has come into the spotlight on Capitol Hill over the past few months amid those calls for investigations and increased criticism from crypto firms who say they face challenges when looking to establish and maintain accounts in the U.S. Another hearing covering the topic is slated for Thursday afternoon in the House Financial Services Committee.

Sen. Elizabeth Warren (D-Mass.), who has often been critical of crypto, noted debanking among minority groups, cannabis businesses and others who have lost bank accounts for unclear reasons. Warren also seemed to find some common ground with the digital asset industry.

"I don't think for a second that you should be locked out of our banking system," Warren told Nathan McCauley, CEO and co-founder of Anchorage Digital, who was testifying at the hearing, and said during his written testimony that the firm had been debunked. Anchorage Digital is an institutional crypto platform and federally chartered crypto bank.

"In many cases, it is wrong for banks to close accounts and threaten your ability to make payroll or pay rent on time without even providing an explanation so long as you are following the law," Warren added.

Warren noted the Consumer Financial Protection Bureau, which she proposed in 2007, has been working to combat debanking for years. The CFPB caught the ire of the Trump administration amid calls from billionaire Elon Musk, head of the newly created Department of Government Efficiency (named in an apparent nod to Musk's favorite cryptocurrency, DOGE), to "delete CFPB."

"If the President is serious about stopping debanking, then he needs the CFPB as his partner to get this done," Warren said.

A flurry of documents

Meanwhile, the Federal Deposit Insurance Corporation released 175 documents on Wednesday morning tied to how the agency supervised crypto-related activity.

"The documents that we are releasing today show that requests from these banks were almost universally met with resistance, ranging from repeated requests for further information, to multi-month periods of silence as institutions waited for responses, to directives from supervisors to pause, suspend or refrain from expanding all crypto- or blockchain-related activity," said FDIC Acting Chairman Travis Hill in a statement.

Hill was previously the vice chair of the FDIC and has said the FDIC should be clearer in how banks work with crypto.

Coinbase sued the FDIC, through consultant firm History Associates, accusing the agency of trying to cut off the crypto industry from the banking sector. The lawsuit also requested the FDIC's "pause letters."

The FDIC began issuing "pause letters" between March 2022 and May 2023 to some financial institutions asking them to not expand crypto-related activities and to provide more information, according to a 2023 report from FDIC's Office of Inspector General. That office is tasked with evaluating the FDIC.

"We were right," said Coinbase Chief Legal Officer Paul Grewal on Wednesday in a post on X. "The previous @FDICgov leadership lied to us all. There were many, many more pause letters."

Disclaimer: The Block is an independent media outlet that delivers news, research, and data. As of November 2023, Foresight Ventures is a majority investor of The Block. Foresight Ventures invests in other companies in the crypto space. Crypto exchange Bitget is an anchor LP for Foresight Ventures. The Block continues to operate independently to deliver objective, impactful, and timely information about the crypto industry. Here are our current financial disclosures.

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Berachain outlines tokenomics ahead of mainnet launch and airdrop

The Block

The Berachain Foundation outlined Berachain’s tokenomics ahead of the much-anticipated Layer 1’s mainnet launch on Thursday, Feb. 6.

According to tokenomics documents released on Wednesday, of the 500 million BERA tokens issued at Genesis, 48.9% are allocated to the community, including 15.8% for an airdrop, 13.1% for additional community initiatives and 20% for ecosystem research and development. A further 34.3% is set aside for Berachain’s seed, Series A and Series B investors, and 16.8% is reserved for advisors and members of Big Bera Labs, the core contributors to the Berachain blockchain.

All parties follow the same vesting schedule, the project said, with 1/6th of tokens set to unlock after a one-year cliff, with the remainder vesting linearly over the following 24 months. BERA will have an inflation schedule of around 10% per annum, subject to governance.

BERA serves as the native gas and staking token of Berachain, while a separate token, BGT, will facilitate governance and economic incentives. BGT is non-transferable and can only be acquired by engaging in activities within the Berachain ecosystem.

The Berachain Foundation also unveiled an airdrop checker for Berachain community members, applications and liquidity providers. Tokens can be claimed on Thursday using a variety of EVM wallets, including Metamask and OKX Wallet, the project said. Eligible claimants include testnet users, depositors to Berachain’s pre-launch liquidity initiative, Boyco, social media contributors and holders of ecosystem NFTs such as Bong Bears.

The airdrop distribution also includes a 2% allocation for holders of BNB within Binance, which is set to be among the initial centralized crypto exchanges to list the token at 1 p.m. UTC on Thursday, alongside Bybit.

What is Berachain?

Berachain is an Ethereum Virtual Machine-compatible Layer 1 blockchain built on the Cosmos SDK that uses a variant of delegated proof of stake consensus called “proof of liquidity,” an attack resistance mechanism meant to harmonize staking and align incentives between security and liquidity.

Berachain’s bear-themed crypto project is run by a group of pseudonymous co-founders known as Homme Bera, Dev Bear, Papa Bear and Smokey the Bera.

In April 2024, Berachain announced it had raised $100 million in a Series B funding round led by Framework Ventures and the Abu Dhabi branch of Brevan Howard Digital. The project previously raised $42 million in a private token round led by Polychain Capital in April 2023.

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Trump's FDIC Chief Rethinks Crypto Guidance as U.S. Senators Probe Debanking

CoinDesk

As U.S. senators prepared to gather for a hearing about U.S. debanking of crypto clients, the interim chief of the Federal Deposit Insurance Corp. said his agency is overhauling its digital assets supervision and revealed more correspondence on Wednesday in which FDIC officials steered banks away from cryptocurrency business.

Travis Hill, the acting FDIC chairman tapped by President Donald Trump, has thrown open more of the agency's past documents and said the U.S. banking regulator will be reconsidering its previous crypto guidance that deliberately kept banks an arm's length away from what had been seen as the unregulated volatility of crypto. The past letters between the FDIC and bank have been the focus of a court Freedom of Information Act battle between Coinbase and the agency, in which the courts had directed the regulator to share more information.

Meanwhile, Hill said the FDIC will be "providing a pathway for institutions to engage in crypto- and blockchain-related activities while still adhering to safety and soundness principles," according to a statement issued before the start of a Wednesday hearing in the Senate Banking Committee on this topic.

"I directed staff to conduct a comprehensive review of all supervisory communications with banks that sought to offer crypto-related products or services," he said. "While this review remains underway, we are releasing a large batch of documents today, in advance of a court-ordered deadline of Friday."

Hill, who will run the FDIC until Trump puts forward a permanent candidate, characterized the agency as deliberately making it impossible for banks to handle crypto business.

"Requests from these banks were almost universally met with resistance, ranging from repeated requests for further information, to multi-month periods of silence as institutions waited for responses, to directives from supervisors to pause, suspend, or refrain from expanding all crypto- or blockchain-related activity," he said.

Read More: U.S. Banking Should Ease Path for Crypto, Republican Taking Reins at FDIC Suggests

When the Senate hearing got underway, Chairman Tim Scott, a South Carolina Republican, called the situation at the FDIC a "disgusting and disheartening picture of abuse" and praised Hill's actions.

At the hearing, Nathan McCauley, the co-founder and CEO of federally chartered crypto bank Anchorage Digital, shared his account of Anchorage being severed from banking relationships because of regulatory pressure.

"To say this is pervasive is an understatement," he told the senators in his testimony. "It's been across the entire industry, everybody has dealt with this."

He called it so common that "it became background noise" in which it was "just assumed that if you were a crypto company, you would have trouble getting bank services."

He contended that the pressure from regulators ran counter to what U.S. bankers actually wanted to do in the digital assets sector.

"All of the big banks wanted to work with crypto and were scared away from it by the regulatory apparatus," he said.

Senator Elizabeth Warren, the committee's ranking Democrat, sought to highlight the other segments of the U.S. population that are routinely blocked from banking services. But she did agree with McCauley's central point.

"I don't think for a second that you should be locked out of our banking system," she said. "In many cases, it is wrong for banks to close accounts and threaten your ability to make payroll or pay rent on time without even providing an explanation, so long as you are following the law."

The congressional review of debanking will continue on Thursday with a House Financial Services Committee hearing with a similar agenda. And that committee's crypto interest will continue next week with a February 11 hearing entitled "A Golden Age of Digital Assets: Charting a Path Forward."

Read More: Trump's Crypto Czar Sacks Says 'Golden Age' Coming

UPDATE (February 5, 2025, 18:00 UTC): Adds information on further congressional hearings planned.

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BlackRock plans bitcoin exchange-traded product for European market: report

The Block

Following the runaway success of its U.S.-based spot Bitcoin ETF, BlackRock is now preparing an exchange-traded product (ETP) linked to the cryptocurrency for Europe, according to Bloomberg, which cited anonymous sources.

The product will likely be "domiciled" in Switzerland, the report said. BlackRock's U.S.-listed spot Bitcoin ETF (IBIT) traces the price of bitcoin, which was trading hands at $97,598.95 as of 11:44 a.m. ET, according to The Block Price Page.

BlackRock's iShares Bitcoin Trust ETF is the largest BTC-based product trading with assets under management of nearly $57 billion, according to The Block Data Dashboard.

"The European market for cryptocurrency ETPs is hotly contested, with more than 160 products available tracking the price of bitcoin, ether and other tokens," the report said. "However, its $17.3 billion size pales in comparison to that of the U.S."

Bloomberg ETF analyst James Seyffart suggested BlackRock might run into issues launching its product in Europe.

"The cheeky work around they used in Canada might not be allowed in Europe. Possible that they might actually launch a standalone. Not sure," he said in a post to X.

BlackRock's IBIT fund broke multiple records last year thanks to its extraordinary growth.

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Ethereum Recovers To $2,800 As Exchange Outflows Near $1 Billion

NewsBTC

Ethereum has made a recovery to $2,800 during the past day as on-chain data shows the whales have been making massive withdrawals from exchanges.

Ethereum Exchange Outflows Spiked After Price Crash

According to data from the market intelligence platform IntoTheBlock, investors reacted to the latest crash in the Ethereum price by making outflows from exchanges.

The on-chain indicator of relevance here is the “Exchange Netflow,” which keeps track of the net amount of the cryptocurrency that’s entering into or exiting the wallets associated with all centralized exchanges.

When the value of this metric is positive, it means the holders are depositing a net number of coins into these platforms. As one of the main reasons why investors transfer to the exchanges is for selling-related purposes, this kind of trend can be a bearish sign for the asset’s price.

On the other hand, the indicator being negative suggests the outflows outweigh the inflows and a net number of tokens is moving out of the exchanges. Such a trend can indicate that the investors are accumulating, which is something that can naturally be bullish for ETH.

Now, here is a chart that shows the trend in the Ethereum Exchange Netflow over the past year:

As is visible in the above graph, the Ethereum Exchange Netflow observed a massive negative spike yesterday after the crash in the asset’s price took place.

In total, the investors withdrew 350,000 ETH (worth around $982 million at the current exchange rate of the token) from the exchanges in this outflow spree. “This is the highest amount of net exchange withdrawals since January 2024!” notes the analytics firm.

Given the timing of the outflows, it would appear likely that they were made by whales looking to buy Ethereum at cheap post-crash prices. The accumulation from the investors has in turn helped the cryptocurrency reach a bottom and make some recovery.

The Exchange Netflow could now be to keep an eye on in the coming days, as the upcoming trend in it might also influence the ETH price. Naturally, a continuation of the outflows would be a positive sign, while an increase in inflows could spell a bearish outcome.

In some other news, the number two stablecoin by market cap, USDC, has seen its transaction count shoot up recently, as IntoTheBlock has pointed out in another X post.

“USDC is becoming increasingly popular, with the number of daily transactions increasing by over 119% in the last year!” says the analytics firm. Stablecoins can end up acting as fuel for volatile assets like Ethereum, so increased activity related to them can be a good sign for the market.

ETH Price

At the time of writing, Ethereum is floating around $2,800, down more than 11% over the last seven days.

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Cboe BZX Exchange proposes options trading on spot Ethereum ETFs

The Block

Cboe BZX Exchange has proposed to amend Rule 19.3 to allow the exchange to list and trade options on spot Ethereum exchange-traded funds. This is a "competitive filing" based on a similar proposal submitted by NYSE American, which is currently pending with the U.S. Securities and Exchange Commission.

The filing specifically mentions the Bitwise Ethereum ETF, the Grayscale Ethereum Trust, the Grayscale Ethereum Mini Trust, "and any trust that holds ether."

Rule 19.3 currently allows options trading on fund shares tied to specific investments, like financial instruments, money market assets, precious metals (considered commodities) and Bitcoin (a cryptocurrency also classified as a commodity), the filing states, and Ethereum funds work the same way — they are Ethereum-backed ETFs set up as trusts.

"The Exchange believes that offering options on the Ethereum Funds will benefit investors by providing them with an additional, relatively lower cost investing tool to gain exposure to spot ether as well as a hedging vehicle to meet their investment needs in connection with ether products and positions," Cboe BZX wrote in the filing.

Options trading on spot Bitcoin ETFs officially went live in November 2024.

Options and derivatives provide liquidity and price discovery for larger institutions, giving them exposure to the underlying asset's price action. Large institutions typically use options as a trading hedge, while retail traders use options for speculation. Options on spot ETFs could ease bitcoin price volatility in the long run by increasing market liquidity — though early conditions suggest continued high volatility as the product goes through price discovery, crypto derivatives trader Gordon Grant told The Block in December.

The nine spot Ethereum ETFs generated $1.5 billion in trading volume on Monday amid the crypto market plunge. This eclipsed the previous $1.22 billion record set on Dec. 19 — the largest since their July 23, 2024 launch day, according to The Block’s Data Dashboard.

ETH is trading down 1.62% over the last 24 hours to around $2,746, according to The Block's price page. Over the last 24 hours, the cryptocurrency saw $40.2 billion of trading volume.

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Banks Want to Crash the Bitcoin Party. Trump Is Opening the Door. — Barrons.com

Sen. Warren takes a stand on crypto debanking and criticizes banks for closing accounts as issue heats up in Washington

Berachain outlines tokenomics ahead of mainnet launch and airdrop

Trump's FDIC Chief Rethinks Crypto Guidance as U.S. Senators Probe Debanking

BlackRock plans bitcoin exchange-traded product for European market: report

Ethereum Recovers To $2,800 As Exchange Outflows Near $1 Billion

Cboe BZX Exchange proposes options trading on spot Ethereum ETFs

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