The federal government is cracking down on the crypto industry

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Proof of State is Fortune Crypto’s Wednesday edition, with Leo Schwartz providing insider insights on policy and regulation.

The crypto industry started the year off with some wins, from Republican allies taking over important House committees to a surprising rise in the price of Bitcoin. It’s also been 12 full days since a major company declared bankruptcy, which falls into the positive development category.

The White House released a “roadmap” for mitigating the risks posed by cryptocurrencies, and the Federal Reserve rejected membership applications for digital asset bank Custodia.

Both moves may appear to impose administrative paperwork, but they reflect the federal government’s tougher stance on cryptocurrencies. This is an expected result given the wreckage left behind by the industry over the past few months.

Custodia’s decision sends a signal that the Federal Reserve is not giving corporations points according to the rules. Led by industry veteran Caitlin Long, Custodia has followed the right path to becoming Wyoming’s “special purpose depository institution.” .

The cryptocurrency industry is currently facing a banking crisis with players such as Silvergate and signature bleeding money.in an interview with luck, Long argued that Custodia’s unique structure could provide stability and prevent bank crackdowns. This is not guaranteed with currently available options. As more and more cryptocurrency companies find backdoors into traditional finance, such as Alameda Research’s investment in her Moonstone maiden Farmington State Bank, regulators believe her FTX implosion occurred early. was lucky, she said.

“It is important to have a safe and healthy link between the traditional financial system and the digital asset financial system,” she said. luck.

In a release on Friday, White House officials made it clear they believed the two could remain separate, and that new legislation from Congress would allow mainstream governments such as pension funds and possibly the banking system to remain separate. It wrote that institutions should not be allowed to “jump headlong into the cryptocurrency market.”

The Federal Reserve and the White House ostensibly operate independently of each other. That her two intertwined actions happened on the same day should at least raise some eyebrows.

Custodia has raised such concerns about intergovernmental coordination in the past. The bank has a still-pending lawsuit against the Kansas City Federal Reserve Bank for another application to operate on a “master account” that allows access to the Fed’s payment services, including bank-to-bank transfers. Custodia blamed the Washington DC board for delaying the application behind the scenes.

The relationship between the White House and the Federal Reserve has further swelled as Biden’s top adviser Brian Dieth, who helped craft Friday’s cryptocurrency roadmap, prepares to step down from his position on the National Economic Council. It can get tight.

Rumored to be the frontrunner? Vice Chairman Lael Brainard has been the most outspoken spokesperson on the Federal Reserve Board about the threat of cryptocurrencies to traditional finance.

Custodia’s setback could signal tough times ahead for the cryptocurrency industry.

Leo Schwartz
leo.schwartz@fortune.com
@leomschwartz

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