Classifying the winners and losers of the OCC’s crypto letter.
Last week, the Office of the Comptroller of the Currency, a bureau of the US Treasury in charge of regulating banks, issued a letter saying that national banks can use blockchains and stablecoins for payment services.
Although the news has been crowded out by Bitcoin’s rise and drop, along with the political revolt in the nation’s capital and tech revolt on social media, the implications will nearly be far-reaching. Banks with a national charter, stated the OCC, may use blockchains and “related stablecoins” for payment activities.
Many are believing that the news is a win for cryptocurrency, including Circle CEO Jeremy Allaire. His company – together with major crypto exchange Coinbase – is responsible for USDC, the second-largest stablecoin by market cap.
“The new interpretive letter establishes that banks can treat public chains as infrastructure similar to SWIFT, ACH and FedWire, and stablecoins like USDC as electronic stored value,” he tweeted. “The significance of this can’t be understated.”
The truth, however, is more complicated, the crypto supporters and detractors both said.
The Wall Street veteran who helped craft a slate of blockchain laws in Wyoming, Caitlin Long, said, “Net-net, I see the OCC letter as a double-edged sword for the crypto sector.”
Long also stated that the guidance could allow big banks to crowd out crypto upstarts as a national bank won’t need federal regulators’ approval before getting into stablecoins.
“But smaller banks and crypto companies applying for bank charters need to obtain prior approval before they can dive in,” she said. “This system inherently favors large banks, and literally tomorrow we could see the biggest banks in the US to enter the market and build network effects faster than smaller banks and native crypto companies.”
It can imitate a corporatocracy ignited by regulatory capture. The acting Comptroller of the Currency, Brian Brooks, moved directly from being Chief Legal Officer of Coinbase, one of the most powerful cryptocurrency companies in the US, to regulate the country’s banks at OCC.
Rohan Grey helped with drafting the STABLE Act, which would require companies issuing a stablecoin to acquire a bank license. He said, “The good news here, I think, is that the letter affirms that stablecoin activities are part of the business of banking, and should be properly regulated as such and restricted to approved entities.”
But he didn’t think “letting banks outsource payments and depository infrastructure to public blockchains and third-party stablecoin issuers” is a safer approach.
Although, Long thinks that banks could run into some roadblocks on this front. “For example, banks are required to obtain acknowledgment of fee disclosures from their customers—but I know of no ERC-20 wallets designed for users to provide advance acknowledgment prior to transacting,” she said. “These are attack vectors for regulators to use against native crypto companies that have issued stablecoins, which inherently do not comply with these rules.”
However, some companies are better arranged than others. Circling back around the Circle, the result might be an OCC approach that fortifies a few well-arranged players in the crypto industry.
“I see this as more nuanced than just traditional banks vs crypto,” Grey said. “Circle, for example, is I think quite happy with this outcome, which positions them perfectly to glob onto the side of the traditional banking system and leaves its less ‘mainstream’ crypto competitors behind.”
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