OCC stablecoin ruling: The most important regulation in crypto history?

OCC’s interpretive letter 1170 carries a plethora of good news for the cryptoasset industry

Copper Team

Stablecoins are now firmly embedded in the financial architecture of the United States. 

This is perhaps the most significant regulatory change to hit the cryptocurrency industry since Bitcoin was invented. We don’t say that lightly. 

The news came through on 4 January 2021 from America’s national bank regulator, the Office of the Comptroller of the Currency. 

OCC Acting head Brian Brooks released Interpretive Letter 1174, allowing banks to participate as nodes in blockchain networks, as well as use stablecoins for payments settlement. 

Brooks, of course, is the former legal chief of Coinbase.  

Spelling out in clear language how financial institutions can do business with cryptocurrency staples like stablecoins and blockchains has massive implications.

The OCC first made a major mark on the cryptocurrency industry in June 2020 with Interpretive Letter 1170, which said that federally regulated banks could custody cryptocurrency. 

What it means

Banks have become increasingly interested in making use of stablecoins but have lacked implicit permission from regulators to this point. JP Morgan’s JPM Coin is probably the most well known, both as the digital-first shop window for the world’s most famous investment bank and a proxy for how banks could use their own created stablecoins to settle transactions for institutional clients. 

The OCC guidance notes that there is increasing market demand for faster and more efficient payments using blockchains, and using stablecoins could marry together the best of both worlds: the efficiency, speed, low cost and interoperability of cryptocurrencies with the stability of existing fiat currencies. 

“Our letter removes any legal uncertainty about the authority of banks to connect to blockchains and thereby transact stablecoin payments on behalf of customers,” said Brooks in a statement.

Certainly, the added clarity on the regulatory status of stablecoins is expected to open up new markets for cryptocurrency as a whole. 

And seeing the banking regulator move with the times is an incredibly positive move. Speaking to Hailey Lennon in Forbes, noted crypto lawyer Stephen Palley drew the comparison with online banking in the early 2000s. “[E]arly internet banking was met with approval by the OCC and is now ubiquitous,” he said, “in spite of early concerns about the safety or practicality of such technology for secure banking services. The OCC continues to show an interest in and desire to engage with new financial technology that consumers demand.”

Whales splash BTC cash

Institutional asset managers have made massive bets on the future of Bitcoin in recent months, buoyed by this improved regulatory outlook. One by one, hedge fund legends have performed an abrupt volte-face: Stanley Druckenmiller, then Paul Tudor Jones and even Ray Dalio have changed their tune.  

Most recently Morgan Stanley’s investment arm boosted its stake in Bitcoin megabuyer Microstrategy to 10.9%, according to SEC filings reported by Bloomberg.

Then Anthony Scaramucci’s Skybridge Capital launched a $310m Bitcoin fund aimed at wealthy investors on 4 January 2020 (minimum investment $50,000). The fund will be custodied by Fidelity and audited by Big Four accountancy firm Ernst & Young. 

While Scaramucci is alive to the volatility in the Bitcoin price, he told CNN: “This is digital gold and it is easier to transfer. This is a portable and modern way to store capital.”

Unlimited quantitative easing to shore up the shaky US economy is one reason why Bitcoin has become the de facto inflation hedge. 

“I’ve been more a reluctant buyer,” Scaramucci admitted. “We expect the fund to be volatile and it could lose money [but] the more likely trajectory is that people can make a monumental amount of money. Bitcoin is unfettered by Federal Reserve policy or gold supply issues.” And its scarcity is key, he said. “There is more demand for Bitcoin now than supply. Its price should go up.”

One remarkable statistic quoted by Twitter user DocumentBitcoin noted that 75% of all US dollars currently in existence were created after Bitcoin was invented.

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