As cryptocurrencies continue to expand in popularity, what was once considered nothing more than a fringe and idealistic concept has begun to gain traction on the mainstream. As is the case with most potentially groundbreaking developments seen across today’s society however, the crypto-market is rich with detractors and skeptics who believe this modern-day gold rush will come to a crashing halt at the expense of novice and experienced investors alike, due in large part to the volatility of the market. Aside from the more obvious risks generally associated with crypto (i.e. abuse of the anonymity provided by these platforms for laundering illicit funds), analysts have also warned of the potential destabilizing effects that mass adoption of cryptocurrencies could have on the traditional capital market and the global economy. While comprehensive regulations governing the market have yet to be introduced, many – most recently Treasury Secretary Janet Yellen – have called for increased legislation and direct government intervention to monitor these assets and further prevent their widespread misuse.

               The Federal Deposit Insurance Corporation (FDIC), a U.S. government corporation that supplies deposit insurance to depositors in American financial institutions, appears to be equally concerned and as such have asked for the cooperation of United States banks to better assess this fluid situation. Last Thursday, the FDIC issued a financial institution letter to the CEO’s of all FDIC-insured banks currently under their supervision. Reports have indicated that this letter requests that banks report all of their “crypto-related activities” for reasons of protecting the financial integrity of their clients and allies across the U.S. financial system. The regulator wants to be “promptly” informed of the plans of every bank that is planning to or currently venturing into the crypto-space, this including details on the pending activities and proposed timeline for utilization.

               “Crypto-related activities may pose significant safety and soundness risks, as well as financial stability and consumer protection concerns,” the FDIC said, noting that there is so much left to understand and assess about the impact that crypto-related activities may have on consumers and the overall market.² Reuters, citing a statement released by the FDIC last Thursday,writes that a disruption in crypto-asset transactions or activities could result in a “run” on a firm’s financial assets and consumers may be confused about crypto assets offered by, through or in connection with their institutions.³ It is clear that both consumers and financial institutions do appear to be facing tangible risks upon embarking into this new frontier. As the total transaction volume of crypto continues to grow exponentially on a yearly basis (rising up to a global total of $15.8 trillion in 2021 – an increase of 567% from the previous year,⁴ clearly there are more opportunities for exploitation of the market available to cybercriminals than ever before. And with an eye-popping $14 billion in illicit funds derived from crypto-related crime in 2021, it is safe to say the exploitation has already begun.

               To date the Biden administration has included several cryptocurrency provisions in its 2023 budget proposal, mainly as part of an effort to generate increased tax revenue. These orders, including Biden’s outline of a government-wide approach to addressing the risks and benefits associated with cryptocurrencies, have been met with mixed reviews thus far. “The executive order is kind of a mixed bag,” Crypto Republic head Andrew Durgee said in a recent statement on the moves. “There’s a number of good things and kind of bad things associated…But it is seemingly disorganized order from our opinion.” Durgee later went on to say “There’s dozens of agencies involved in the executive order… and that’s a lot of cooks in the kitchen at one time and that makes things very difficult to determine what are the right steps, the right moves.”¹ The FDIC seems to be one of the “cooks” that Durgee was referring to. With the information that they gather from cooperative financial institutions, they intend to review this data and provide them with relevant supervisory feedback. Hopefully the effort will result in greater security and protections for both consumers and financial institutions venturing into the world of crypto, though it remains to be seen whether this novel oversight will reign in this free market.

Citations

1. Altus, Kristen. “Crypto Expert Says Biden’s Exec Order ‘Seemingly Disorganized’.” Fox Business, Fox Business, 12 Apr. 2022. 
2. “Financial Institution Letter: Notification of Engaging in Crypto-Related Activities.” FDIC, 7 Apr. 2022. 
3.  “U.S. FDIC Asks Banks for Info on Crypto Activities, Cites Potential ‘Systemic Risks’.” Reuters, Thomson Reuters, 7 Apr. 2022. 
4. Vanian, Jonathan. “Crypto Crime Just Hit an All-Time High of $14 Billion.” Fortune, Fortune, 6 Jan. 2022.