Donald Trump’s incoming administration is likely to bring positive changes for crypto entities working with banks, according to investment bank TD Cowen, but expectations for this new regulatory environment should be “reasonable.”
Banks are responsible for complying with anti-money laundering (AML) and Bank Secrecy Act (BSA) rules, as well as managing risks such as liquidity and concentration, TD Cowena’s Washington Research Group led by Jaret Seiberg wrote in a note on Monday. . “This will cause some banks to be cautious, even as Trump’s regulators signal less concern about increased ties between traditional finance and cryptocurrencies,” Seiberg said. “This is why some banks may still decide the risk is too great, while others will take advantage of the opportunity. Additionally, some crypto entities may resist any government oversight. This could limit how comfortable banks are with them.”
This means that stronger ties between traditional finance and cryptocurrencies are “inevitable” under the Trump administration, according to Seiberg. Over time, banks will become more willing to accept crypto risk, driven by the growth of the crypto market and the passage of time since the 2022 cryptocurrency disruption and the dissolution of Silvergate Bank, Seiberg said.
Banks could be allowed to issue stablecoins, which Seiberg said would help ensure proper management and auditing of reserves while keeping cash in the banking system. In addition, some banks could be able to trade crypto assets in a similar way that some can trade stocks, especially if Congress enacts new laws on the structure of the crypto market, Seiberg said. He also expects a possible easing of restrictions on cryptocurrency-backed lending and digital payment systems that use stablecoins and other crypto-assets.
Backlash over restrictions on crypto-banking
Top crypto companies, including Coinbase, have a long history he complained that US banking regulators have actively tried to limit crypto firms’ access to the traditional financial system. Last year, Coinbase hired research firm History Associates Incorporated filed a lawsuit against the Federal Deposit Insurance Corporation (FDIC) seeking the release of “standstill letters” sent to banks by the agency’s inspector general. The letters allegedly instructed the banks to stop cryptocurrency-related activities.
FDIC released mostly unredacted documents from last week, revealing that banks have been asked to suspend direct involvement in cryptocurrencies between 2022 and 2023, but have not been ordered to limit banking services for crypto firms, contradicting industry claims of widespread “debanking”.
The leaked documents “show a coordinated effort to stop a wide range of crypto activities — everything from basic BTC transactions to more complex offerings,” Coinbase Chief Legal Officer Paul Grewal said. he said in X’s post last week, urging Congress to “immediately initiate hearings on this matter.”
Crypto companies were pinning their hopes on the Trump administration. Last year, Trump reportedly said he would not allow banks to “choke” crypto firms out of the financial system, and some industry executives expect him to address the issue through an executive order once he takes office on January 20.
