Can Trump's Executive Order Revive Crypto Banking?

US President Donald Trump is preparing to sign a significant executive order aimed at rolling back the anti-crypto banking regulations put in place by the Biden administration, per Decrypt. These measures have long posed challenges for cryptocurrency businesses seeking traditional banking services, particularly regarding access to master accounts at the Federal Reserve. 

According to White House's Presidential Working Group on Digital Assets Executive Director Bo Hines, this executive order seeks to dismantle “Operation Chokepoint 2.0,” a regulatory effort that critics argue has targeted crypto businesses and executives by denying them banking services.

The Biden Administration’s Stance on Crypto

Under the Biden administration, the cryptocurrency industry has faced significant regulatory hurdles. While crypto’s rise in popularity has been undeniable, many traditional financial institutions have remained hesitant to work with crypto businesses. 

The regulatory uncertainty, coupled with increased scrutiny from bodies like the Treasury Department and the Federal Reserve, has made it more difficult for crypto companies to secure basic banking services.

“Operation Chokepoint 2.0” has become a central point of contention. The term was coined by Nic Carter of Castle Island Ventures and refers to efforts that echo the Obama-era “Operation Choke Point,” which sought to restrict certain high-risk businesses from accessing banking services. While Operation Choke Point targeted payday lenders and gun dealers, critics argue that the current version under Biden is extending this crackdown to crypto businesses, making it harder for them to access essential banking infrastructure.

For many in the crypto industry, this regulatory environment feels increasingly hostile. These "anti-crypto" policies have led to greater compliance burdens and the risk of debanking, where crypto companies find themselves shut out of traditional financial systems.

The Executive Order: What to Expect

Trump’s upcoming executive order is expected to reverse these policies and open up the banking system for cryptocurrency businesses. By doing so, it aims to restore easier access to traditional banking services and secure federal banking privileges for crypto companies, particularly in securing access to master accounts at the Federal Reserve.

Master accounts are a crucial part of the U.S. financial infrastructure. They are held by federally chartered banks and allow them to directly access payment systems and the Federal Reserve’s services. 

While only a handful of crypto-focused institutions have gained access to these accounts in the past, securing these accounts would allow crypto exchanges and custodians to operate more efficiently and seamlessly within the broader financial system.

The Challenges Crypto Businesses Face

Banking Access Issues: One of the main hurdles that crypto companies face is securing and maintaining banking relationships. Traditional financial institutions have been reluctant to work with crypto firms due to regulatory uncertainty, high compliance costs, and concerns over risk management.

Strained Compliance Efforts: Crypto businesses are often subjected to stricter compliance checks and increased scrutiny. This has created a complicated regulatory environment, making it harder for these companies to expand and serve their customers.

The Master Account Problem: While few crypto banks have been granted master accounts with the Federal Reserve, the issue goes beyond merely securing a traditional bank account. Without access to these accounts, crypto companies find it much more difficult to offer services such as direct payments, efficient clearing, and smooth payment processing.

How Trump's Executive Order Could Change the Game

The proposed executive order could bring transformative changes to the crypto industry. If Trump successfully rolls back the restrictions on crypto banking, it would give cryptocurrency companies easier access to traditional financial services, including the coveted master accounts at the Federal Reserve.

Reduced Operational Barriers: Master accounts would allow crypto firms to more easily process payments, reduce transaction costs, and streamline their operations. This would eliminate a lot of the friction that crypto companies face in navigating the banking system.

Boost in Legitimacy: Gaining access to the Federal Reserve’s payment system could increase the legitimacy of the cryptocurrency industry. Being able to tap into the same payment systems as traditional financial institutions would likely lead to increased trust and confidence from both consumers and institutional investors.

Encouraging Innovation: With fewer regulatory hurdles in place, crypto companies could redirect their focus towards innovation rather than constantly battling bureaucratic challenges. This shift could foster a competitive landscape where new technologies and financial products are developed, benefitting the industry as a whole.

The Federal Reserve: A Major Hurdle?

While the Trump administration is eager to roll back these policies, there’s one key institution that could pose a challenge: The Federal Reserve. The Fed is an independent body, and its policies regarding master accounts are not easily influenced by executive orders. The central bank has historically maintained a strict stance on granting master accounts to non-traditional institutions, including crypto banks.

Even if Trump’s executive order creates a directive for the Federal Reserve to grant more master accounts to crypto banks, the Fed will still apply its own criteria. These include rigorous risk assessments and due diligence processes to ensure the stability and security of the financial system.

However, the executive order could still create significant momentum. It could help shift the direction of regulatory agencies, such as the Treasury Department and the Office of the Comptroller of the Currency (OCC), which could indirectly affect how the Fed handles crypto-related matters.

Potential Ripple Effects of the Executive Order

Beyond easing banking access, Trump’s executive order could also tackle other issues affecting the cryptocurrency industry. One significant topic that may be addressed is the classification of stablecoins, digital assets designed to maintain a stable value, often pegged to the U.S. dollar. Currently, there is some ambiguity around whether stablecoins should be classified as securities, which could bring more regulatory scrutiny to the market.

If Trump’s executive order explicitly states that stablecoins should not be treated as securities, it would provide more clarity and regulatory certainty for companies involved in the stablecoin market. This move could encourage innovation and foster a healthier environment for the development of digital currencies.

The Trump Administration’s Crypto Vision

This would mark Trump’s third significant executive order related to cryptocurrency since returning to office. His first executive order, signed in January 2023, established the Presidential Working Group on Digital Asset Markets, signaling a strong commitment to addressing crypto issues at the highest level. The second order, signed in early February, called for the creation of a U.S. government Bitcoin strategic reserve, a move designed to further legitimize Bitcoin as a recognized asset.

The latest executive order, focused on banking access, could be a game-changer for the crypto industry, as it would reshape the landscape for digital assets and crypto companies operating in the U.S. However, the true impact remains to be seen, and the industry will need to keep a close eye on how the Federal Reserve responds.