US Banks Get First-Ever Joint Warning on Cryptocurrencies From Country’s Monetary Agencies

WASHINGTON (Sputnik) - US banks have received the first warning from the country’s monetary agencies on the contagion risks associated with cryptocurrencies, which have gone from a darling trade just over a year ago to near pariah status after the collapse of crypto exchange FTX.

In their maiden joint statement on crypto, the Federal Reserve, Federal Deposit Insurance Corp and the Office of the Comptroller of the Currency expressed their worries about the safety and soundness of bank business models with concentrated exposure toward cryptocurrencies and activities related to that industry.

"The events of the past year have been marked by significant volatility and the exposure of vulnerabilities in the crypto-asset sector," the statement said. "It is important that risks related to the crypto-asset sector that cannot be mitigated or controlled do not migrate to the banking system."

FTX, founded in 2019, had over one million users and was the third-largest cryptocurrency exchange by volume when it collapsed in November, filing for bankruptcy. The company’s founder, Sam Bankman-Fried, pleaded not guilty in a Manhattan court on Tuesday to perpetrating what one federal prosecutor called a fraud of epic proportions.

Since FTX’s fall from grace, cryptocurrencies have also lost a bulk of their value, with industry leader Bitcoin hitting more than two-year lows at around $15,500, before rebounding to trade at under $16,700.

The three monetary agencies said banks issuing or holding crypto tokens that are stored on a public, decentralized network are "highly likely" to be inconsistent with safe and sound banking practices. That stance has dealt a potential blow to several banks’ efforts to provide crypto services to their customers.