In a joint statement released on Tuesday, the Federal Reserve, the FDIC, and the Office of Foreign Exchange Regulation (OCC) expressed concern about the "significant" risks that crypto assets may present to the whole banking system.
In a joint statement, the authorities stressed the importance of preventing a "migration of risks linked with the crypto asset sector to the banking system, which cannot be mitigated or managed."
According to a recent statement, "Agencies continue to exercise care on present or prospective crypto asset-related activities and risks in each financial organization given the major dangers identified by the recent bankruptcies of numerous prominent crypto asset companies."
Banks are being cautioned by regulators about a variety of hazards related to cryptography, including fraud, volatility, inadequate risk management, and infection in the crypto industry.
The agencies also mentioned the habit of holding cryptocurrency assets and the legal ambiguity around foreclosure and property rights.
The news on Tuesday was made only minutes before Sam Bankman-Fried, the co-founder and former CEO of the insolvent FTX cryptocurrency exchange, entered a not-guilty plea to eight charges of electronic fraud, securities fraud, and conspiracy.
For his alleged involvement in the most well-known Bitcoin meltdown to date, Bankman-Fried could spend up to 115 years in prison.
Contrary to reputable and safe banking procedures:
According to the statement, issuing or storing as core crypto assets those that are issued, stored, or transferred in an open, public, and/or decentralized network or similar system "is probably incompatible with safe and secure banking practices," according to the agencies' current understanding and experience to date.
The security and dependability of business models that concentrate on activities related to crypto assets or have a focused impact on the sector have also caused severe issues for authorities.
Agencies keep an eye on banks that can be exposed to dangers related to the cryptocurrency industry and take into account any requests from banks to engage in crypto operations.
The OCC has established regulations that require banks to get authorization before engaging in any cryptocurrency transaction.
In the early 2000s, acting financial controller Michael Hsu linked cryptocurrencies to derivatives, citing the potential for contamination and the enthusiasm behind the industry's expansion.
Although it keeps a careful eye on the cryptocurrency markets, the Financial Stability Supervision Council does not yet consider cryptocurrency activity to be systemic.
Congress has been presented with several bills to regulate cryptocurrencies, but it will take some time for the legislation to pass.