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Fed Delivers Devastating ‘Surprise’ Bitcoin And Crypto Blow After Huge Price Surge

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Bitcoin BTC and cryptocurrencies have rocketed into the new year with the combined crypto market climbing back over the $1 trillion mark (a rally that some think could be just getting started).

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The bitcoin price has settled at around $23,000 per bitcoin after a $200 billion crypto market earthquake.

Now, the U.S. Federal Reserve has delivered a shattering blow to the crypto industry's hopes of mainstream acceptance by rejecting crypto bank Custodia's application to become a member of the Fed’s system—warning it suffers from "significant safety and soundness risks."

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Wyoming-based Custodia’s "novel business model and proposed focus on crypto-assets presented significant safety and soundness risks," the Federal Reserve board said in a statement.

"The board has previously made clear that such crypto activities are highly likely to be inconsistent with safe and sound banking practices," the Fed said, adding Custodia's "risk management framework was insufficient to address concerns regarding the heightened risks associated with its proposed crypto activities, including its ability to mitigate money laundering and terrorism financing risks."

Custodia, known as Avanti before February last year, applied to become a member of the Fed system two years ago.

"Custodia is surprised and disappointed by the board's action today," Custodia chief executive Caitlin Long said in a statement. "The Fed advised Custodia 72 hours ago that it could either withdraw its membership application or see it denied, and the Fed denied it in record time."

Last year, Custodia sued the Federal Reserve board of governors and the Federal Reserve Bank of Kansas City, accusing them of "unlawfully" delaying a decision on its application for a Fed master account.

Fed chair Jerome Powell has previously warned against granting master accounts for crypto banks that could trigger a flood of applications, saying the Fed has to consider "the broader safety and soundness implications" and calling an approval "just hugely precedential."

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The Fed's slap down of the crypto bank comes after the crypto banking industry has suffered extreme volatility and withdrawals in the aftermath of the shock FTX collapse.

California-based Silvergate, described by FTX founder Sam Bankman-Fried as revolutionizing banking for blockchain companies, has seen its share price crash almost 90% over the last six months and recorded bitcoin and crypto outflows of more than $8 billion during the fourth quarter of 2022.

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