The Federal Reserve Quietly Rewrites Its Crypto Rulebook

In a move that received far less attention than it deserves, the Federal Reserve has formally withdrawn one of its most restrictive crypto era policies. The 2023 policy statement that strongly discouraged state member banks from engaging in so called novel crypto related activities has now been replaced with a more flexible framework. While this change may appear technical on the surface, it represents a meaningful shift in how U.S. regulators view digital assets, banking risk, and innovation.

The original 2023 policy was introduced in the aftermath of major crypto failures, most notably the collapse of FTX. At the time, regulators were focused on containment. The Fed imposed a strong presumption against allowing state member banks to conduct activities that went beyond what national banks were explicitly permitted to do. In practice, this created a chilling effect. Banks avoided crypto related services not because they were illegal, but because approval was unlikely.

That policy environment has now changed.

Under the updated 2025 policy statement, the Fed acknowledges that both the financial system and its own understanding of innovative financial products have evolved. The most important distinction in the new framework is between insured and uninsured state member banks. Banks with FDIC deposit insurance remain bound by the strict limits of Section 24 of the Federal Deposit Insurance Act. However, uninsured state member banks can now apply for permission to engage in activities that were previously treated as off limits, evaluated on a case by case basis.

This adjustment does not mean the Fed is embracing crypto without reservations. Rather, it reflects a shift from blanket skepticism toward risk based supervision. The Fed’s position is no longer that novelty itself is a problem, but that different activities require different regulatory treatment depending on the risks they present.

The broader political backdrop matters here. Since returning to office, Donald Trump has openly supported the digital asset sector and pushed federal agencies to reconsider policies shaped by crisis era thinking. While the Federal Reserve is formally independent, it does not operate in a vacuum. Regulatory tone, coordination with other agencies, and supervisory priorities are all influenced by the broader policy climate.

This change also aligns the Fed more closely with recent actions taken alongside the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, including updated guidance on digital asset custody and risk management. Together, these steps suggest a coordinated effort to move away from outright restriction and toward controlled integration.

One of the clearest implications of this shift appears in the case of Custodia Bank. The Wyoming chartered institution, founded by Caitlin Long, was previously denied access to a Federal Reserve master account. That decision was heavily grounded in the 2023 policy statement. Custodia operates as an uninsured bank with full reserve backing, a model that sits outside traditional banking norms but also avoids many of the risks associated with leverage.

Under the new policy framework, Custodia can now seek approval for activities that were effectively prohibited before. While approval is not guaranteed, the door is no longer closed by default. This alone represents a major regulatory recalibration.

There were dissenting voices. Fed Governor Michael S. Barr argued that equal treatment across bank charters reduces regulatory arbitrage and preserves competitive balance. His position reflects a traditional regulatory philosophy that favors uniformity. However, the majority view now appears to be that uniformity should not override nuance, especially when dealing with emerging technologies.

Perhaps the most important takeaway is what this means for crypto’s relationship with the U.S. banking system. The 2023 framework made it nearly impossible for banks to experiment with activities such as holding assets like Bitcoin or Ethereum on balance sheet or issuing stablecoins in a compliant structure. The new approach does not automatically allow these activities, but it makes them discussable, reviewable, and potentially approvable.

This is how regulation actually evolves. Not through sudden legalization or deregulation, but through the quiet removal of structural barriers. The Fed is not declaring crypto safe. It is acknowledging that its earlier assumptions were shaped by a moment of systemic stress, and that policy built for crisis management is not always appropriate for long term oversight.

In that sense, this policy rollback is less about crypto enthusiasm and more about regulatory maturity. The U.S. is no longer trying to wall crypto off from the banking system. Instead, it is cautiously exploring how to let it in without repeating past mistakes.