Perhaps the Most Significant Development of the Year, Yet Quickly Forgotten: What Does the FED’s Latest Cryptocurrency Decision Mean?

Kraken Financial, the Wyoming-based bank of the cryptocurrency exchange Kraken, has made history by receiving approval from the FED for a “skinny” (restricted) master account.

Experts describe the outcome of this 5.5-year battle as a “historic turning point” for the crypto industry.

In a special episode of the Unchained podcast’s “DEX in the City” team, legal and crypto experts discuss what it means for Kraken to have direct access to the FED system.

Speaking at the event, Vyle, the General Counsel (GC) of a company that provides vaults for Kraken’s DeFi products, emphasized the significance of this development with the following words:

“A Fed master account is like the ‘installation’ of the U.S. financial system. If you have this account, you can hold your reserves directly with the Fed and conduct transactions via FedWire without needing an intermediary bank. This is a revolutionary change that eliminates counterparty risk and makes the system much more efficient.”

Kraken’s verification, unlike a fully authorized bank account, has a “skinny” (restricted) status. Vyle summarized the limitations this status imposes as follows:

• Kraken will not be able to access emergency loans through the Fed’s “discount window”.
• The FED will not be able to earn interest income from the reserves it holds.
• The approval is not permanent for now; it is structured as a one-year pilot program.

Speakers noted that Kraken has been waiting for this approval since 2020 and discussed why the process has taken so long. Vyle pointed out the difference between Kraken and Custodia Bank, which made a similar application but was rejected:

Related News: Renowned Investor Mike Alfred Says Bitcoin is at a Turning Point: “I Expect a Flow of Liquidity into Bitcoin and Ethereum Once the Waters Calm Down”

The development was met with significant backlash and reaction within the traditional banking sector. Jessi Brooks, another member of the program, explained why banks opposed it as follows:

Jesse also argued that while there’s some merit to the banks’ argument that “crypto companies shouldn’t take shortcuts into regulated spaces,” the 5.5-year review process proves Kraken didn’t use any “shortcuts.”

This approval strengthens the bridge between the cryptocurrency industry and traditional finance (TradFi), and it is stated that such approval from the FED gives the sector unprecedented “regulatory credibility.” Experts argue that this step is a major institutional “unlock” that opens the door for other crypto companies as well.

*This is not investment advice.

Continue Reading: Perhaps the Most Significant Development of the Year, Yet Quickly Forgotten: What Does the FED’s Latest Cryptocurrency Decision Mean?