A U.S. banking regulator advised banks to temporarily refrain from engaging directly with cryptocurrency in 2022 and 2023, but did not instruct them to discontinue banking services for crypto businesses, despite industry claims of extensive “debanking,” based on documents released on Friday.
A judge mandated the Federal Deposit Insurance Corporation (FDIC) to disclose versions of supervisory “pause letters” sent to unnamed banks after History Associates Incorporated, a research firm employed by the crypto exchange Coinbase, initiated a lawsuit against the agency for their release.
The FDIC initially shared these letters in December but was directed by the judge to reissue them with more detailed redactions. This latest set of 25 letters includes two additional communications sent to unnamed banks that were absent from the original FDIC submission.
This legal action is part of an initiative by Coinbase aimed at revealing what it and other crypto firms describe as a systematic attempt by U.S. banking regulators to restrict crypto companies’ access to the traditional financial system.
Coinbase’s chief legal officer, Paul Grewel, posted on X Friday that the newly released letters, with fewer redactions, demonstrate a “coordinated effort to halt a broad range of crypto activities” and called for Congress to investigate further.
In response to these allegations, the FDIC also published an internal memo from 2022 on Friday outlining how regulators should evaluate inquiries from lenders interested in directly engaging with crypto assets, as opposed to providing banking services to crypto firms.
Altogether, these documents offer a rare insight into the confidential bank supervision process. They indicate that while FDIC examiners have taken a cautious approach towards the crypto industry, which has faced numerous scams, bankruptcies, and volatility, they did not mandate banks to completely withdraw from the crypto sector.
The release of these documents comes just weeks before the anticipated announcement of a comprehensive crypto policy reform by President-elect Donald Trump’s incoming administration. Trump is expected to sign an executive order instructing bank regulators to adopt a more lenient stance towards the sector, possibly as soon as his inauguration on January 20.
Several of the FDIC letters indicate that staff advised banks to either halt their entry into crypto projects or avoid further extending client services related to cryptocurrencies. In other instances, the FDIC required banks to provide detailed responses before they could move ahead with crypto ventures.
The internal memo clarifies the distinction between banks directly participating in crypto-related activities, such as holding crypto assets, and providing conventional banking services for crypto clients, like lending and opening deposit accounts. Engaging directly in the first category necessitates more stringent oversight, according to the memo.
This memo reinforces statements made in December by FDIC Chairman Martin Gruenberg, who explained to reporters that the agency does not “debank” crypto companies concerning access to bank accounts, yet that direct involvement with cryptocurrencies by banks merits “supervisory attention.”
The memo highlights that crypto-related activities may present serious risks to safety, soundness, consumer protection, and financial stability, emphasizing that these risks continue to evolve.
Newly released documents reported by Reuters disclose how U.S. regulators have approached cryptocurrency activities in the banking sector. Contrary to popular assertions of “debanking,” banks were advised to halt direct crypto engagements in 2022 and 2023, though they were not prohibited from serving crypto businesses.
The Federal Deposit Insurance Corporation (FDIC) sent supervisory “pause letters” to unnamed banks following a legal challenge by History Associates Incorporated, a company contracted by Coinbase. This information is part of Coinbase’s ongoing effort to emphasize what it views as an initiative to sever connections between crypto businesses and traditional banking.
These letters, which were first disclosed in December, gained additional attention after a judge mandated the FDIC to release less-redacted versions. A newly uncovered set of 25 letters, including two that were previously undisclosed, underscores the cautious stance adopted by regulators.
FDIC’s Crypto Pause — No Comprehensive Ban
The letters imply that while banks were instructed to momentarily refrain from growing crypto services, there was no comprehensive direction to sever ties with the sector. Instead, FDIC personnel asked banks to hold off on new endeavors or respond to detailed inquiries before advancing with crypto-related initiatives.
An internal FDIC memo from 2022, also released on Friday, stresses tighter scrutiny for banks directly involved in crypto activities, like holding assets in custody, compared to those simply providing traditional banking services to crypto enterprises. It underscores the “substantial safety and soundness risks” linked to crypto undertakings, emphasizing that these risks remain dynamic.
This position is consistent with remarks made by FDIC Chairman Martin Gruenberg in December. He mentioned:
“The agency does not ‘debank’ crypto firms regarding access to bank accounts, but direct engagement with crypto by banks is an area of supervisory concern.”
Congressional Call-Out: Coinbase Urges Thorough Investigation
Coinbase’s Chief Legal Officer, Paul Grewal, reacted to the recent disclosures with pointed criticism. In a post on X, he called for a more extensive congressional inquiry, claiming that the letters unveiled “a coordinated effort to halt a wide range of crypto activity.” Coinbase contends that these actions reflect a more extensive initiative to hinder the industry’s development.
It’s noteworthy that the FDIC “magically” discovered TWO additional pause letters during this search after previously claiming that it had complied with an earlier court order. It’s difficult to trust their good faith when their narrative continues to unravel further with each inquiry. The new Congress should initiate… — paulgrewal.eth (@iampaulgrewal) January 3, 2025
The timing of these disclosures is significant. With an upcoming administration likely to adopt a more lenient approach to crypto regulation, a policy shift may be forthcoming. President-elect Donald Trump is expected to issue an executive order that will relax regulatory constraints on the crypto sector shortly after his inauguration on January 20.
Regulators are tasked with the challenge of ensuring financial stability while tackling the risks associated with crypto, which include fraud and price fluctuations. These documents provide a rare insight into how federal agencies manage this balance, highlighting caution without outright exclusion.
Where Analysts Think Bitcoin is Headed in 2025
Bitcoin (BTCUSD) has performed strongly in 2024, surpassing numerous price thresholds, including $100,000, as a variety of factors boosted investor trust in the leading digital currency.
The increase this year began with heightened interest related to the introduction of spot bitcoin exchange-traded funds (ETFs) that started trading in January, followed by a halving event that restricted the supply of new bitcoin, and the anticipation of favorable crypto policies after Donald Trump’s reelection, seemingly bolstered by several of his appointments after the election.
Although the latest forecasts from the Federal Reserve regarding interest rate cuts next year unsettled the cryptocurrency markets, some of the previously mentioned grounds for optimism still exist—however, if the Fed moderates its rate-cutting strategy, experts indicate that Treasury yields may stay high, diverting investors from bitcoin and similar risk assets.
This is why certain analysts maintain a bullish outlook on bitcoin but caution that volatility may be on the horizon.
Analysts Anticipate Further Growth for Bitcoin
Before the shock from the Fed meeting, digital asset management firm Bitwise had predictions for 2025 that anticipated bitcoin would exceed $200,000 for the first time.
That projection escalates to $500,000 if the federal government embraces Senator Cynthia Lummis’s proposal to acquire 1 million bitcoin for a “strategic bitcoin reserve.”
President-elect Trump has also endorsed the concept of a bitcoin reserve, yet there is little clarity regarding how much bitcoin the government might obtain, whether it would expand its current holdings, or the intended purpose of such a reserve.
Analysts at Standard Chartered have a comparable price outlook for bitcoin and agree with Bitwise in forecasting that inflows for spot bitcoin ETFs in 2025 will mirror the levels observed this year. These funds possess bitcoin as their base asset and must buy it as investors invest in them. Thus far this year, bitcoin ETFs have recorded net inflows exceeding $35 billion, based on data from Farside Investors.
Analysts from VanEck are also optimistic but to a lesser extent. They project bitcoin prices could reach a peak of $180,000 in 2025 with considerable volatility: they anticipate prices might drop by 30% after reaching new highs earlier in the year, followed by a phase of consolidation during the summer and a climax toward the end of the year.
Additionally, Gene Munster’s Deepwater Asset Management predicted earlier this month that bitcoin could hit $150,000 in 2025, stating that “favorable market and regulatory circumstances will propel Bitcoin to new heights in 2025, with expected pullbacks prior to reaching its peak.”
At present, bitcoin is trading around $96,000, with the overall cryptocurrency market cap estimated to be about $3.3 trillion.
MicroStrategy, Coinbase Stocks Rise Alongside Bitcoin to Start 2025
Shares of companies focused on cryptocurrency, including Coinbase (COIN) and MicroStrategy (MSTR), saw a rise on Thursday morning as Bitcoin (BTCUSD) also increased.
After Donald Trump’s election victory in November, cryptocurrency and many related stocks experienced a surge, but that rally slowed during the latter half of December. Some executives in the crypto sector welcomed Trump’s win, believing a second term might create a more favorable regulatory environment compared to the Biden administration.
On Thursday morning, Bitcoin climbed over 2% to $96,500, while both Coinbase and MicroStrategy each gained nearly 4%. Ethereum (ETHUSD), another widely traded cryptocurrency, also increased by over 3.4% on Thursday.
Bitcoin Surpassed $100,000 For The First Time in December
Bitcoin concluded its rally by exceeding the $100,000 mark for the first time in December before pulling back, with some analysts anticipating the digital currency could double that amount by the end of 2025.
Bitcoin and the stocks that often reflect its performance finished the year below those highs. In the last four trading sessions of 2024, Coinbase and MicroStrategy both experienced declines, while Bitcoin’s value rose by less than 1% on December 31.
MicroStrategy (MSTR) purchased more Bitcoin (BTCUSD) in the last week, marking the eighth consecutive week that the company has increased its holdings of the cryptocurrency.
The firm, which has shifted from software company to Bitcoin acquirer, disclosed in a filing with the Securities and Exchange Commission (SEC) on Monday that it spent approximately $209 million to buy 2,138 Bitcoin from December 23 to December 29, at an average cost of $97,837 each. Overall, the company now possesses 446,400 Bitcoin.
Recent trading saw shares of MicroStrategy drop by more than 6% as Bitcoin’s price decreased. The cryptocurrency was recently trading at about $92,500, down from last week’s highs of around $99,000 and a record high of $108,000 achieved two weeks prior.
Purchases Part of MicroStrategy’s ’21/21′ Strategy
The recent Bitcoin acquisitions were funded through at-the-market (ATM) share sales, part of MicroStrategy’s previously announced “21/21” strategy.
This 21/21 plan entails raising $42 billion of capital via the sale of new shares and fixed-income securities to acquire additional Bitcoin.
In Monday’s filing, MicroStrategy reported a year-to-date “Bitcoin yield” of 74.1%, which indicates the increase in the number of Bitcoins owned per share of MicroStrategy.
During the week ending December 15, MicroStrategy bought 15,350 Bitcoins at an average price of roughly $100,386 each, which was financed through the sale of MicroStrategy shares.
The company currently holds 439,000 Bitcoins, valued at approximately $47 billion based on current prices. Its investment in Bitcoin has significantly affected its stock performance. Since adopting its Bitcoin strategy in August 2020, MicroStrategy’s market capitalization has surged from around $1.1 billion to nearly $100 billion.
The remarkable increase in MicroStrategy shares this year has been supported by rising Bitcoin prices. This year, Bitcoin saw a rally due to demand from the new spot Bitcoin exchange-traded funds (ETFs), followed by the Bitcoin halving and finally the reelection of Trump, raising expectations for a more crypto-friendly administration.
Nevertheless, MicroStrategy shares could still have substantial growth potential. Its entry into the Nasdaq 100 index next week is likely to lead many funds and ETFs, such as the Invesco QQQ Trust (QQQ), to buy the stock in order to align their portfolios with the index.
However, gaining entry into the S&P 500 index may be more challenging, according to analysts James Seyffart and Eric Balchunas from Bloomberg. Companies must have a market capitalization of at least $18 billion, but the S&P has complete discretion regarding which companies are selected.
MicroStrategy’s main concern could be its profitability. The company has not turned a profit in the last few quarters, as noted by the analysts.
This situation could change for MicroStrategy in January 2025. Current accounting standards do not allow companies like MicroStrategy to account for Bitcoin at fair value on their books. Instead, they must record impairment losses if Bitcoin prices decline, while not recognizing any gains from increasing Bitcoin prices. Such impairments affect the company’s profits. New rules established by the Financial Accounting Standards Board (FASB) will enable capturing some of the benefits from rising Bitcoin prices.