U.S. banking regulators release a blue paper, making it more flexible for lending institutions to venture into encryption assets.

Written by: Bao Yilong, Wall Street Insights

The U.S. banking regulatory authorities have released a blue paper on the holdings of cryptocurrency by lending institutions, providing a new roadmap for traditional banks to enter the cryptocurrency asset space.

On July 14, according to media reports, U.S. regulators released new guidelines advising banks on how to provide cryptocurrency custody services to customers without violating regulations. This move is seen as another important development in guiding traditional finance into the realm of digital assets since the "Trump 2.0 era."

According to reports, the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency jointly issued a statement indicating that banks planning to offer cryptocurrency custody services must take into account the evolving characteristics of the crypto market and its underlying technology, and establish a governance framework that can adapt to the associated risks.

The background for the issuance of this new guideline is that regulatory agencies withdrew the previously published risk guidelines related to the cryptocurrency industry in April of this year. At that time, the Federal Reserve also rescinded a directive from 2022 that required banks to report in advance before engaging in cryptocurrency asset activities.

Now, the cryptocurrency operations of these banks will be incorporated into regular regulatory processes for oversight. This move is interpreted by the market as a signal of regulatory "easing," giving banks greater autonomy in offering digital asset products and services to clients, and marking a clear shift from the previously more cautious regulatory stance.

Wall Street Journal previously mentioned that the market sentiment was boosted by the news that the U.S. Congress will welcome "Crypto Week" and review three key bills. Bitcoin briefly broke through $123,000 during intraday trading on Monday, setting a new historical record before quickly falling back below $120,000.

This dual benefit of regulation and legislation is reshaping the market's expectations for the crypto asset ecosystem. On one hand, industry participants believe that clear rules will bring long-term stability to the market.

On the other hand, some analysts warn that the current upward trend is highly dependent on policy prospects, and any legislative setbacks could trigger a sharp market correction.