The Federal Reserve and Other Agencies Are Warning Banks About Crypto

U.S. regulators like the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency have established a joint statement warning banks all over the world about the alleged risks and problems that come with crypto trading.

The Federal Reserve Feels Crypto Is Problematic

These agencies say that banks need to take these risks seriously and implement the necessary security measures to keep themselves and their customers safe. The statement read:

The events of the past year have been marked by significant volatility and the exposure of vulnerabilities in the crypto asset sector… It is important that risks related to the crypto asset sector that cannot be mitigated or controlled do not migrate to the banking system.

The events of the past year have got plenty of traders, and above all, legislators a little spooked. For one thing, 2022 was marred by some of the worst volatility the crypto arena has ever seen, with assets like bitcoin losing more than 70 percent of their value. BTC hit a new all-time high of about $68,000 per unit in November of 2021, though it entered the new year on a down note, and by the time 2022 was over, it had fallen into the mid-$16K range.

Things didn’t stop there, however. The rest of the crypto industry followed in BTC’s footsteps, and the space has lost more than $2 trillion in valuation in under a year. It’s a sad and ugly sight to see.

In addition, 2022 saw several bankruptcies and elements of fraud. While criminal activity has always been a problem in the crypto arena, nothing could have prepared the world for what would happen with FTX, the now fallen crypto exchange that rose to fruition in just three short years.

At the time of writing, the company’s chief executive Sam Bankman-Fried has been charged with eight counts of fraud and conspiracy, though he has recently entered a plea of not guilty. It is alleged he used customer funds to purchase lavish Bahamian real estate.

You Caused a Lot of These Issues!

At the same time, there is irony in that some of the agencies issuing the statement – such as the Federal Reserve – are responsible for the very crypto problems they’re pointing out. While many contributing factors led to bitcoin’s demise in 2022, one big one was the fact that the Federal Reserve continued to hike rates as a means of dealing with inflation.

The tactic proved relatively useless, as everyday Americans are still witnessing higher prices at grocery stores and they can no longer afford homes. The side effect of these ongoing rate hikes is that bitcoin has ultimately taken a turn for the worse and will need a lot of recovery time if it’s ever to achieve its previous all-time high again.

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