Big news came out in the crypto world this past week. Specifically, one crypto bank finally broke through the glass ceiling that has been hanging over crypto’s access to the wider banking system, and the implications of this will be more widespread and pervasive than most people realize.
To understand the magnitude of this situation, though, we need to step back and explore crypto’s relationship to both the established banking system and to the Federal Reserve.
Crypto’s (not so) sordid history
First, it’s worth remembering that one of the big early drivers in the development and deployment of cryptocurrencies was control and independence from established monetary and banking systems.
In other words, many early advocates for crypto were in the game for ideological reasons and not primarily for the investment opportunity.
Of course, over the years, more investors frequenting the bleeding edge of technology moved into crypto, and while these people were more investment oriented than the earliest crypto adopters, bleeding edge investors focused on risk/reward ratios to maximize the risk and reward possibilities over stable overall growth.
In the last few years, however, more and more investors evaluating crypto from a stable, long-term investing perspective moved into the asset class. And in recent years, it hasn’t been just a few retail investors. Institutional investors have started to diversify heavily into cryptocurrencies, too.
But even those more traditional, long-term focused investors had to deal with lingering challenges that crypto had to wider adoption, specifically ease of access and use of crypto.
Access issues
That’s not to say that there haven’t been inroads by crypto to entrench themselves into established financial channels.
For example, previously, I’ve talked about how banks have been using Ripple/XRP for funds transfers both domestically and internationally.
The cynical might point out that, of course, banks are happy to use crypto for their uses, in this case, to move money more quickly (and at a cost savings) than they had previously been able to, but how does that help the retail investor?
The answer? It doesn’t directly. But it does show the move towards wider adoption, specifically among institutional investors.
Crypto companies still couldn’t access the Federal Reserve’s payment system directly and had to use established banks as intermediaries to move money from fiat currency to crypto and back again.
Established banks didn’t complain about this too much because they still got a cut for the inconvenience of having to use them to access funds.
(In fact, keeping established banks entrenched as intermediaries in transactions is one of the big reasons that they’ve been fighting crypto regulation legislation so hard. They don’t want to lose their control and, thus, “their cut” of the profits.)
Which brings us back to the big news today.
The big news
What’s going on is that a crypto firm has finally been granted access by the Fed to the Federal Reserve’s core payment system. Alexander Osipovich and Dylan Tokar with The Wall Street Journal write,
The approval of the so-called master account at the Fed will allow the unit, Kraken Financial, to handle transactions more quickly and seamlessly for big clients and professional traders, the company said… [T]he approval marks a major win for the crypto industry, which for years had been rebuffed in its efforts to tap into the Fed system.
This really is a game changer because it means that this particular firm and future crypto firms who also gain approval will be able to move funds from fiat currency (such as U.S. dollars) to crypto and back without having to go through an established bank using Fedwire which moves over four trillion dollars a day.
It means that crypto investors will begin to be able take control of their funds without the established banking system being able to stop them.
This change makes crypto easier to access and easier to use, and, as you’ve seen with things like the internet, when it’s easier to access and use (like on your smartphone or widely available wifi), many more people take advantage of that opportunity.
It becomes mainstream.
A long time coming
Crypto firms have been trying to get access to Fedwire for years (since at least 2020, if not earlier), but this is the first time that the Fed has approved a crypto firm for this access.
The market reacted in ways that are no surprise:
- Bitcoin’s price surged
- Capital flowed into crypto
- Crypto-related companies saw increased investment
Those are all good things for crypto investors in general.
But that misses the big point which is that this is a milestone in the advancement of crypto into widespread mainstream acceptance and use.
Of course, established banks were critical of the Fed’s approval of Kraken for the master account. The Bank Policy Institute (which you won’t be surprised to learn supports maintaining the current established bank stranglehold on money movement and finance) issued a statement expressing concerns about “unsecured payments,” a lack of transparency in the approval process, and a lack of finalized “policy framework for those accounts.”
Basically, any excuse will do because TradFi is desperate to maintain their monopoly over funds flows. I don’t think any of them believe they can realistically compete with crypto.
Understand, though, their problem is not, and shouldn’t be, our problem. You should be able to access your funds without their interference because it isn’t their money. (Maybe I have a bit of that early-adopter energy in me, after all…)
The fact of the matter is that this move to ease of access and ease of use of crypto by the average person is a major shift in the structure of the financial system.
And, in this case, that’s good for everyone who wants to control their own money.
If you have that spirit of independence (and like tax-advantaged ways of expressing that spirit) along with a long-term real investor viewpoint on investing, we here at BitIRA make it easy to diversify your savings cryptocurrencies. You can find out more by getting our Free Crypto IRA Guide. Alternately, if you’ve done your due diligence and you’re ready to get started, you can open a Digital IRA online anytime, day or night, in less than 10 minutes.
