Fed Relaxes Crypto Oversight

Liquidity Meets Regulatory Capitulation

In December 2025, the Federal Reserve executed a quiet but decisive pivot that reshaped the environment for crypto banking and digital assets. On December 12, liquidity conditions eased. Six days later, on December 18, the Fed formally rolled back its most restrictive cryptocurrency guidance from the 2023 crackdown. Liquidity returned at the exact moment the regulatory wall came down.

The shift had been building for months. The August 15 decision to sunset the Novel Activities Supervision Program (NASP) was the first visible crack. What followed was a controlled retreat from crypto exceptionalism, as the Fed moved away from treating digital asset activity as something requiring special restriction. By December, the central bank wasn’t choosing between regulation and accommodation anymore. It stepped back on both fronts at once.

That shift was immediately reflected in market commentary. Economist Peter Schiff framed the Fed’s renewed Treasury bill purchases as quantitative easing “by another name,” arguing that ongoing bill buying amounted to inflationary policy regardless of labeling.

Whether one agrees with that view is secondary. What matters is timing.

As The Kobessi noted, the Treasury General Account fell by roughly $78 billion in a single week in mid-December, pushing cash directly into the financial system, while the Fed began executing roughly $40 billion in reserve management purchases through mid-January. The Fed chose to relax cryptocurrency oversight as markets were already reading its balance-sheet posture as turning accommodative.

The End of the “Novel Activities Supervision Program”

On August 15, 2025, the Federal Reserve announced it would sunset the Novel Activities Supervision Program (NASP)—the special crypto and fintech oversight regime it introduced in mid-2023, in the immediate aftermath of the industry crackdown.

NASP functioned as a regulatory firewall. Banks that wanted to engage in crypto—custody, stablecoins, settlement rails—had to clear a separate, case-by-case non-objection process before doing anything meaningful. In practice, that wasn’t neutral supervision. It was a gate. For institutions like Custodia Bank, which sought a Fed master account to operate cryptocurrency services, NASP gave the Fed a clean veto. Requests could be declined indefinitely under the banner of “novel activities,” with no formal appeal.

For nearly three years, the message was consistent: crypto might exist, but it did not belong inside the banking system.

The August sunset cracked that stance. Folding cryptocurrency oversight back into the Fed’s “normal supervisory process” was the central bank quietly signaling that these activities no longer required quarantine treatment. No special lane. No parallel rulebook. Just banks, risks, and exams.

Still, that wasn’t the real break.

Federal Reserve withdraws restrictive 2023 policy limiting crypto activities

That came on December 18, 2025.

On that date, the Federal Reserve formally rescinded its 2023 policy statement that had discouraged state-member banks—especially uninsured ones—from engaging in crypto-related business. The replacement guidance doesn’t cheerlead and doesn’t pre-approve activity. What it does is more important: it removes the presumption of denial. Uninsured state-chartered banks can now offer crypto custody, issue stablecoins, and provide digital-asset services under standard, risk-based supervision.

Neutral, not permissive. But neutral is enough.

The knock-on effects are significant. Regulatory arbitrage reopens. State-chartered banks can now compete with OCC-regulated institutions without assuming automatic rejection. For firms like Custodia, a Fed master account is no longer just a legal argument—it becomes a live regulatory pathway.

Stablecoin issuance also snaps into focus. The GENIUS Act already gave state-chartered banks a federal runway for stablecoin subsidiaries. What remained was the Fed’s veto. The December 18 reversal removes that final choke point, allowing payment stablecoins to move from policy theory to execution.

The Institutional Green Light for Cryptocurrencies

The December 18 reversal didn’t come out of nowhere. It followed a regulatory sequence that had already been set in motion months earlier, starting with the SEC and CFTC’s Project Crypto, unveiled in August 2025 and steadily advanced through the fall.

On paper, Project Crypto is about modernization. Updating how cryptocurrency assets are traded, cleared, and custodied. Letting broker-dealers run more services under one roof. But listen to the language regulators chose. SEC Chair Paul Atkins framed it as a way to move “America’s financial markets on-chain.” That shift is already visible in practice. Networks like Canton, which has quietly become a backbone for regulated on-chain settlement across Wall Street, show how blockchain infrastructure can operate at scale inside existing financial and compliance frameworks.

The December 18 rescission is the Fed acknowledging that reality. By lifting its restrictions on uninsured banks engaging in crypto activity, it effectively said: if everyone else is moving forward, we’re not going to stand in the doorway anymore. That’s not an endorsement of cryptocurrency. It’s institutional self-preservation. Capitulation, dressed up as coordination.

That sequencing matters because Congress is still behind. In mid-December, the U.S. Senate postponed consideration of the CLARITY Act—the long-awaited market structure bill meant to formally divide cryptocurrency oversight between the CFTC and SEC—pushing debate into early 2026. Committee leaders confirmed the delay was procedural, not ideological, with government funding and election dynamics taking priority. The House has already passed its version, and backers expect Senate markup in January. But the gap is telling: while Congress negotiates framework law, regulators are already acting. The Fed didn’t wait for CLARITY. It moved first.

Conclusion

The setup is straightforward. Liquidity is back. Regulation stepped aside. And Treasury financing needs mean the Fed can’t credibly tighten without breaking its own markets.

That’s the regime.

The trade isn’t about confidence in policymakers. It’s about constraint. RMP keeps reserves ample. Fiscal dominance limits real tightening. Banks can now touch crypto without regulatory deadweight. Excess liquidity has to go somewhere.

It goes into scarce, balance-sheet-agnostic assets. Bitcoin, gold, select real assets. Crypto reacts late—but when it moves, it moves fast.

What breaks this? Only a clean absorption of Treasury issuance by private buyers without Fed support. If reserves shrink and real rates rise sustainably, the thesis stalls. Current data doesn’t point there.

There’s also precedent.

Commentators pointed out that the Fed has used similar language before—most notably in 2019, when so-called “NOT QE” operations were introduced to stabilize repo markets, only to expand dramatically months later. The parallel isn’t a forecast, but a reminder: when the Fed eases through plumbing and semantics, those measures have a habit of growing rather than reversing.

The Fed doesn't promise a bull market. But it just removed the brakes.