A Crypto Firm Joined an Exclusive Club at the Fed This Week. Here’s What the ‘Watershed’ Moment Means.
Key Takeaways
- Kraken’s banking unit Payward has been waiting for over five years for a Fed master account, which it recieved this week.
- Wyoming Senator Cynthia Lummis, an industry advocate, called the approval a “watershed moment.”
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Crypto just tapped into the U.S. financial system’s plumbing. That could mean a gusher of new opportunities for the industry.
Kraken, which operates one of the oldest U.S. crypto exchanges, was this week granted approval for what is called a master account—an industry first—giving it access to the Federal Reserve’s core payment systems, including Fedwire. That means Kraken’s banking subsidiary can use the payment rails used by banks and credit unions to move money between institutions rather than going through an intermediary.
That the Federal Reserve Bank of Kansas City approved Kraken’s application is a pivotal moment for the industry. It stands to move crypto from the fringes of finance, putting it on the same footing as established banks and paving the way for other digital asset firms to do the same.
WHY THIS MATTERS TO CRYPTO
Aside from the optics of legitimacy, crypto firms can now more seamlessly move money through the U.S. financial system’s core plumbing.
Payward, the Kraken subsidiary, applied for access in October 2020, but the Biden administration kept digital asset firms at arm’s length from the U.S. financial system. The news “marks the convergence of crypto infrastructure and sovereign financial rails,” Kraken co-CEO Arjun Sethi said in a statement. Wyoming Senator Cynthia Lummis on Wednesday called Kraken’s approval a “watershed moment.”
The approval boosts the profile of privately owned Kraken, which last year confidentially filed for an initial public offering. The debut would expand crypto’s presence on major exchanges, joining the likes of Coinbase (COIN), Circle (CRCL), Gemini (GEMI), Bullish (BLSH) as well as others.
The Fed, the Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency last April withdrew several guidance documents that restricted banks from crypto and stablecoin activities. In December the OCC conditionally approved plans from a handful of crypto companies, including Circle and Ripple, to launch national trust banks that would let them offer some banking services, including custody of digital assets.Trump family-backed World Liberty Financial in January applied to do the same.
Kraken’s master account is limited to certain Fed services. It can’t, for example, receive interest payments on reserves held at the central bank.
The development isn’t being received happily by the banking industry. Independent Community Bankers of America chief Rebeca Romero Rainey in a statement said Kraken’s approval “poses risks to the banking system.” The Bank Policy Institute’s co-head of regulatory affairs, Paige Pidano Paridon, expressed concern that the approval was granted “before the Federal Reserve Board has finalized its policy framework for those accounts.”
“Sorry about your monopoly,” Jesse Powell, founder and chair of Kraken, said in a social media post. “We’re the bankers now.”
