With the backing from the Trump administration and the relaxation of regulations, companies like Circle and BitGo are making moves to transform into fully-fledged financial institutions.
Recent reports suggest that a fresh wave of cryptocurrency companies is making an entrance into the once exclusive American banking system, and this time, they are gaining traction.
Initiating a shift in traditional banking structure, major players such as Circle and BitGo are gearing up to seek bank charters and financial licenses, as per sources cited by the Wall Street Journal.
The transition is being acknowledged by conventional banks too. For instance, US Bancorp is reinstating its cryptocurrency custody program through NYDIG, and Bank of America (BofA) has plans to introduce its stablecoin once the necessary legal guidelines are in place.
Even international heavyweights are monitoring the situation closely, with a consortium comprising Deutsche Bank and Standard Chartered exploring methods to expand their cryptocurrency activities in the US.
Though details are limited, the interest shown indicates that the cryptocurrency sector is no longer confined to the sidelines but is stepping into mainstream financial operations.
Notably, these companies are aiming to function with the same credibility and opportunities as traditional financial institutions, including managing deposits, providing loans, and introducing stablecoins under regulatory oversight.
The timing of this shift is strategic, with a notable change in federal policies led by President Trump's vision to establish the US as a significant player in the Bitcoin sphere, which has cleared regulatory paths that were closed post the FTX incident.
In parallel, Congress is progressing stablecoin legislation that demands issuers to secure federal or state licenses.
The pursuit of bank status is aligned with a broader initiative to legitimize cryptocurrencies within the US financial domain. Earlier this year, regulators eased key restrictions, such as the SEC's contentious SAB 121, which had impeded banks from holding cryptocurrencies for clients.
In addition, the Federal Reserve Chair, Jerome Powell, affirmed that banks can cater to cryptocurrency clients if they adopt appropriate risk management strategies.
Furthermore, the Office of the Comptroller of the Currency (OCC) clarified that banks can offer stablecoin and custody services, given they adhere to established banking regulations, as a regulatory nod.
These developments have empowered cryptocurrency firms that were previously kept at arm's length. Anchorage Digital, the sole US crypto-native firm with a federal bank charter, sees the regulatory loosening as significant progress, despite the substantial compliance costs.
BitGo, set to custody reserves for the USD1 stablecoin linked to Trump, is progressing towards a bank charter application, while Circle, the issuer of USDC, is also pursuing licenses amid competition, similar to Tether, in the traditional finance sector's foray into stablecoins.
While the IPO for Circle was postponed due to market volatility and financial uncertainty, regulatory clarity remains a top priority.
Coinbase and Paxos are exploring comparable directions, contemplating industrial banks or trust charters to broaden their financial services within permissible legal bounds.
At the regulatory front, venture firm a16z has urged the SEC to revamp crypto custody rules for investment firms, reflecting the industry's quest for clarity and equal treatment.