Fed delivers devastating blow to bitcoin and crypto after huge price spike

Bitcoin
BTC
and cryptocurrencies boomed in the new year with the combined crypto market climbing back above the $1 trillion mark (a rally that some believe has only just begun).

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Bitcoin price settled at around $23,000 per bitcoin after a $200 billion earthquake in the crypto market.

Now, the US Federal Reserve has dealt a crushing blow to the crypto industry’s hopes of mainstream acceptance by rejecting crypto bank Custodia’s application to become a member of the Fed system, warning that it suffers from “significant security and soundness risks”.

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Custodia’s “new Wyoming-based business model and proposed focus on crypto-assets posed significant security and soundness risks,” the Federal Reserve Board said in a statement. A declaration.

“The Board of Directors has previously made it clear that such crypto activities are very likely to be inconsistent with safe and sound banking practices,” the Fed said, adding that “Custodia’s risk management framework was insufficient to address concerns about heightened risks associated with its proposed crypto businesses, including its ability to mitigate money laundering and terrorist financing risks.”

Custodia, known as Avanti before February last year, applied to join the Fed system two years ago.

“Custodia is surprised and disappointed by the action of the Board of Directors today,” Custodia Chief Executive Officer Caitlin Long said in a statement. A declaration. “The Fed informed Custodia 72 hours ago that it could either withdraw its membership application or have it denied, and the Fed declined it in record time.”

Last year Custodia for follow-up the Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas City, accusing them of “illegally” delaying a decision on its application to open a main Fed account.

Fed Chairman Jerome Powell said previously warned against granting prime accounts for crypto-banks that could trigger a flood of applications, saying the Fed needs to consider “the broader security and soundness implications” and calling an approval ” just extremely previous”.

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The Fed’s slap on crypto banking comes after the crypto banking sector suffered extreme volatility and pullbacks following the collapse of the FTX shock.

California-based Silvergate, described by FTX founder Sam Bankman-Fried as a banking revolution for blockchain companies, has seen its share price crash nearly 90% in the past six months and recorded bitcoin and crypto outflows of over $8 billion in the fourth quarter of 2022.