A wave of notoriously risky cryptocurrency firms could one day be integrated into the traditional banking system under a little-noticed provision in a new bill that is raising alarms among financial experts about potentially destabilizing consequences, the Washington Post reported. The provision — part of a sweeping proposal to regulate the crypto industry that Sens. Cynthia M. Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) introduced in June — would force the Federal Reserve to grant so-called master accounts to certain crypto firms seeking them from the central bank. The accounts give holders access to the Fed’s payment system, allowing them to settle transactions for clients without involving a separate bank. Two Wyoming-based crypto firms championed by Lummis stand to benefit. Both companies, Custodia Bank and Kraken Financial, have been stymied over the last two years in bids to gain Fed master accounts. But financial regulators and experts say the measure’s impact would cascade through the industry and beyond. The push by crypto firms to join the banking system’s central plumbing comes at a fraught moment for the industry and its regulators. A steep sell-off in cryptocurrencies has erased $700 billion from the digital asset market since early May, forcing a reckoning for some previously highflying start-ups. One such firm, Celsius Network, halted withdrawals last month, citing “extreme market conditions” as it froze as much as $8 billion in deposits.
