OCC Allows Banks to Hold Cryptocurrency for Transaction Fees

TLDR

• OCC permits banks to hold crypto for transaction fees.
• Ethereum likely to be most impacted by this change.
• Banks must comply with existing regulations for crypto activities.

On October 13, 2023, the Office of the Comptroller of the Currency (OCC) issued a key regulatory update. This update clarifies that U.S. national banks can now hold cryptocurrency on their balance sheets. The purpose of this holding is to manage and facilitate the payment of network transaction fees, commonly known as “gas fees,” on blockchain networks. Previously, banks were limited in their ability to deal directly with cryptocurrencies for such purposes. This move represents a significant shift in the regulatory landscape, as banks can now engage more fully with blockchain technology.

The OCC is the primary regulator of national banks in the United States. It has previously provided interpretive guidance about the use of digital assets by these banks. These guidelines form the compliance baseline for federally chartered U.S. banks engaging with cryptocurrency. This latest announcement further expands the permissible scope of activities that banks can undertake with digital assets, potentially facilitating smoother crypto-related operations.

Key Details of the OCC Announcement

The OCC news release specifies that banks can hold crypto assets as principals. This means that they can hold these assets on their balance sheets for anticipated transaction fee payments. This decision aligns with approved banking activities, provided they comply with existing regulations. Notably, the release stresses that banks must conduct these activities safely and lawfully.

A direct quote from the OCC’s official release emphasizes that a national bank can pay “network fees, also known as ‘gas fees.'” Moreover, holding small amounts of cryptocurrency assets to cover these fees is now considered permissible under the new guidance.

Cryptocurrencies Potentially Impacted

This regulatory change could affect several key cryptocurrencies. Ethereum (ETH) is likely to be the most impacted because its network uses gas fees extensively for transactions. Other cryptocurrencies related to native network fee payments might also be influenced. These could include Bitcoin (BTC) for certain Layer 2 solutions, Avalanche (AVAX), Polygon (MATIC), and Binance Smart Chain’s BNB, depending on how banks implement these changes.

While no immediate data on Total Value Locked (TVL), liquidity, or staking flow changes have been reported, analysts expect direct impacts to depend on bank adoption and integration strategies. The market is likely to observe changes after banks begin implementing and publicizing their new crypto-related processes.

Historical Context and Future Expectations

Historically, the OCC has approved crypto-related activities that led to increased institutional interest and market activity. For instance, previous OCC letters allowed banks to offer crypto custody services, resulting in new products and heightened market participation. This current update could prompt a similar response, particularly within markets reliant on transactional gas fees.

No key leaders or influencers within the cryptocurrency space, such as Arthur Hayes, CZ, or Vitalik Buterin, have yet commented publicly on this OCC update. Nevertheless, their insights could shape community and market reactions as this regulatory change becomes part of the broader conversation.

Conclusion aligns with regulatory goals

In conclusion, the OCC’s latest regulatory clarification allows national banks to hold cryptocurrencies to manage transaction fees. This decision could enhance banks’ ability to participate in blockchain activities within a legally compliant framework. As these changes unfold, further updates on the practical impacts and broader market reactions are anticipated.