D.C. Turf War Opens Crypto Regulatory Arbitrage

The Fed staked out its turf this week, telling lenders to notify it if they offer services for bitcoin and its ilk.Other agencies are also wrestling to oversee the $1 trillion market.The scrap provides an opportunity for some industry participants to capitalize on the regulatory arbitrage, but it hurts token owners.By BreakingviewsCryptocurrency ventures can divide and conquer Washington’s regulatory fiefdoms. The U.S. Federal Reserve staked out its turf this week, telling lenders to notify it if they offer services for bitcoin and its ilk. Other agencies are also wrestling to oversee the $1 trillion market. The scrap provides an opportunity for some industry participants, but it hurts token owners.The central bank’s move is aimed at bringing more crypto activities under its purview. Because of murky rules or outright prohibitions, such as traditional banks being banned from directly trading digital assets, lenders have been wary of wading too far into the wild market.The Fed’s supervisory letter gives banks the green light to go further, with guardrails. If they have adequate risk management and controls in place, it looks like the Fed won’t stand in the way.The decision flies in the face of other rules. For example, a Securities and Exchange Commission bulletin in May said companies that hold digital assets for clients must record the risk on their balance sheets at the currency’s fair market value. The edict increases regul...