Yaya Fanusie, a cryptocurrency researcher and former CIA analyst, believes the slow start on US CBDC ([Central Bank Digital Currency](/news/article/uk-sought-cbdc-head)) development could lead to a loss of control over the global financial system. 

Fanusie, currently the policy head at the Crypto Council for Innovation, noted in a Bloomberg interview on 28 February that sanctioned states seek to transact on financial infrastructure that isn't heavily influenced by the US to move funds more freely across borders.

Further, he suggests that if the US [CBDC adoption](/news/article/central-bank-of-kazakhstan) continues to lag, it may result in unforeseen geopolitical implications and trouble over time. According to him, the state-issued central bank digital currencies could be a crucial element in the global adoption of such infrastructure. He also warned that the US could lose its influence over developing new standards in this area, negatively impacting its economic statecraft.

However, the US Federal Reserve has recently made progress in the US CBDC project, known as the [Digital Dollar Project](https://digitaldollarproject.org/wp-content/uploads/2023/01/Digital-Dollar-Project-White-Paper-2.0_2023.pdf), with the release of its latest whitepaper on 18 January. Nevertheless, the Federal Reserve has yet to receive approval from the US government to move forward with this project.

## China's advantage on early adoption of CBDC  

Fanusie, in the [Bloomberg interview](https://www.youtube.com/watch?v=BCRvX9s7xMA), noted China's advantage in the early adoption of CBDC since 2014 and the launch of the pilot version of its digital yuan (e-CNY) on 4 January, 2022. According to him, the e-CNY has already processed millions of transactions across millions of wallets.

Further, he added that an array of pilots are currently testing smart contracts to introduce programmability into CBDCs. Additionally, China is assisting other nations in adopting similar standards and collaborating for their CBDC to CBDC transactions. Fanusie noted that countries might have an unspoken "race" to gain a geopolitical advantage in the CBDC realm.

## Opponents' viewpoint

Some critics of central bank digital currencies believe governments leverage blockchain-backed CBDCs to retain financial oversight over their populace.

One such instance of this resistance occurred in the United States, where Congressman Tom Emmer, an advocate of cryptocurrency, put forward the CBDC Anti-Surveillance State Act to safeguard the financial confidentiality of American citizens against potential intervention by the Federal Reserve.


red image of US building and crypto coins

Delayed US CBDC Adoption Could Spell Trouble 

The US Federal Reserve has again rejected an application by Custodia Bank for membership of the Reserve System.

Despite the request for reconsideration, the central bank [upheld its decision](https://www.federalreserve.gov/newsevents/pressreleases/orders20230223a.htm), citing the application's inconsistency with the necessary legal requirements. Meanwhile, a district court has permitted the lawsuit between this crypto firm and the Federal Reserve to proceed.

In January, the central bank denied Custodia's membership application, which it had submitted in 2019. The board allows rejected applicants to request a review of their membership status.

The Fed stated that the Custodia Bank management framework was "inadequate" when it denied the application. Furthermore, the Fed issued [a joint declaration](https://cointelegraph.com/news/us-federal-agencies-release-joint-statement-on-crypto-asset-risks-and-safe-practices) with the OCC (Office of the Comptroller of the Currency), alongside the FDIC (Federal Deposit Insurance Corporation), stating that [cryptocurrencies](/news/article/cryptocurrency-adoption) are inconsistent with safe banking practices. 

This firm seeks to join the central system to be regulated under the same rigorous standards that traditional banks must adhere to and to pave the way for other [crypto banks](/news/article/crypto-banks-access) seeking to meet these heightened standards.

Upon its first refusal, it was stated that the operational strategy entailed notable challenges to its security and stability and asserted that the company lacked an excellent system for managing risks.

## Deadline for Custodia's amended complaint set for 1 March

Firm representative Nathan Miller stated on 17 February that the central legal issue being questioned is whether the Fed had the authority to make decisions regarding master accounts and that the crypto bank had attempted to find a sensible solution before being pressured by the Fed. The judge has instructed Custodia to submit its initial amended complaint to the court before 1 March.

On 22 February, a Wyoming District Court judge denied a motion by the Fed board to dismiss a lawsuit from Custodia. The case was filed due to the central bank's delay of more than two years in providing this crypto bank with a master account.

With a master account, it could access the Federal Reserve payment systems without involving a third-party bank. The Fed rejected the master account application in January 2020, which had been submitted two years earlier in October 2018.


custodia bank logo with red background and US federal reserve logo

Custodia Bank Application Denied by the Fed 

The Federal Reserve has made it easier for progressive financial organizations to access their master accounts and participate in the international monetary system. This appears to be a step towards the [US Federal Reserve granting crypto banks direct access to the Fed's funds](https://99bitcoins.com/bitcoin-news-summary-aug-22-2022/), eliminating the need for these institutions to work with traditional financial intermediaries.

## U.S. Federal Reserve eases access to central banking for crypto banks

The U.S. Federal Reserve announced it would release the final rules governing how [alternative financial institutions](/news/article/crypto-friendly-banks-uk) may gain access to its "master accounts," which are required to participate in the international monetary system.

The Federal Reserve seems to be moving closer to providing Wyoming's special purpose depository institutions (SPDIs) like Custodia (previously Avanti) and Kraken Bank access to these accounts, eliminating the need for intermediate banks. In 2017, the Fed initiated the guidance proposal process by issuing a request for comments.

After almost 300 people commented, the second round of public feedback was held earlier this year. Fed Vice Chair Lael Brainard released a statement in which she said, "The new guidelines establish a consistent and transparent process to consider requests for Federal Reserve accounts and access to payment services to ensure a safe, inclusive, and creative payment system."

[The new regulations are essentially in line with proposals from 2021](https://www.coindesk.com/policy/2022/08/15/us-fed-opens-pathway-for-crypto-banks-to-tap-central-banking-system/), which will establish a tiered approach that will allow the Fed to tailor its vetting process for providing access based on the type of financial institution making the request. There is a progressively more thorough evaluation procedure at each tier.

The recommendations would make Tier 1 banks eligible for FDIC insurance. "Subject to prudential supervision by a federal banking regulator," but not "federally insured." Companies in the third tier are "not federally insured and nor subject to prudential supervision by a federal banking institution," which describes the Wyoming crypto banks.

The Fed received feedback after issuing its initial proposed guideline in 2021 and its modified the guidance earlier this year, as stated in the press release.

Many comments suggested that the Proposed Guidelines make it more difficult for institutions with unusual charters to open accounts and use services.

Regardless of the institution's operations, many commenters felt that the Proposed Guidelines should hold all financial institutions and crypto banks to the same standards as federally insured depository institutions.
 


Central banking access eases for crypto banks

On Wednesday, the U.S. federal reserve raised its interest rates by 75 basis points. It's the highest rate increase in 28 years, and it's part of a larger attempt to combat rising inflation, which has roiled the economy and markets, from stocks and bonds to cryptocurrencies.

According to a [statement (https://www.federalreserve.gov/monetarypolicy/files/monetary20220615a1.pdf) released by the Federal Open Market Committee (FOMC), which determines the Fed's monetary policy, the central bank will continue to shrink its balance sheet at the rate stated in May.

According to the Fed, the Fed Funds rate, which is the rate at which commercial banks can borrow and lend their excess reserves to one another overnight, would climb to a range of 1.5 percent -1.75 percent. According to Goldman Sachs, bond traders are pricing in a range of 3.25 percent to 3.5 percent by the end of the year, signalling an extremely quick and severe pace of monetary tightening.

## Bitcoin Skyrockets

After the announcement from the Fed crypto immediately reacted to the news. Following the news, bitcoin skyrocketed, hitting values above $21,000. It has bounced back from an 18-month low. Following a volatile week, altcoins like Solana and Cardano saw double-digit gains.

Ripple and BNB both increased by 9.8% and 7.4%, respectively, while [Dogecoin](/coins/doge), Polkadot, and Avalanche all had a double-digit short-term rise. They each gained 13.73 percent, 11.26 percent, and 14.59 percent.

At the same time, the price of Ethereum (ETH) increased by 6% to USD 1,180. Stocks followed suit, with the broad S&P 500 index climbing 0.17 percent in the first hour after the news was released.

According to CoinMarketCap, global capitalization increased by roughly 4% to $ 950 billion.

## Final Thoughts on the Fed Crypto impact

According to crypto experts, the stock and crypto markets will remain turbulent in the near future due to concerns about inflation, the Russia-Ukraine war, and rising oil costs.




U.S. Fed crypto interest rate hike causes surge

This week we watched as the [Bitcoin](/coins/btc) price crashed to its lowest level in almost a year, infamously going along with the stock market plunge.

This, however, isn't unexpected and can be attributed to the Federal Reserve's tightening its grip on the overall economy. Last week, Fed Chairman Jerome Powell stated the central bank accepted a half-percentage-point interest rate rise in an attempt to restrain inflation that reached its record heights in the last 40 years.

Constant rising inflation, paired with a heavy growth of the interest rates, creates one of the most significant short-term dangers for the American economy. The Fed also cautioned that the Russia-Ukraine conflict could represent a dangerous threat to the country's financial stability.

The central bank said that more 'adverse surprises' in interest rates and inflation could affect the financial system negatively, especially if they are accompanied by economic activity declining.

The rest of the algorithm is pretty clear - as the Fed raises rates, the U.S. Dollar Index became the strongest in the last 20 years.

The Crypto community is not happy with the Fed's supremacy over the digital currency markets. Bitcoin's price crashed by 17% in April - the worst monthly performance this year. The biggest cryptocurrency by its market cap completed six consecutive red weekly candles, a phenomenon that hasn't happened since 2014.

However, solace of a kind is found in the fact that crypto prices are following equities, especially tech stocks. This means that the fall isn't the direct result of investors not believing in crypto. Still, it shows that Bitcoin is still not considered a hedge against inflation.

## Fears of Crypto Winter

Analysts argue about what could happen next. Some are afraid of repeating the crypto winter 2018, while others claim the crypto sector is in a better condition now than it was four years ago.

Still, the geopolitical situation is far from ideal. Last year was marked by a COVID pandemic that boosted virtual finance and resulted in altcoins jumping more than 5,000%. This year, we are witnessing an exodus from the crypto market.

At the time of writing, Bitcoin was trading at more than 40% lower than its all-time high. It won't be easy to HODL and many will be tempted to sell. 

However, to sell a loss, you're limiting yourself from profiting.

The Fed may be a big deal, but it isn't the only regulator of the digital currency market. The whole sector is still in diapers and we're still waiting for it to be regulated.

## Crypto Not Losing Its Grip

Be that as it may, we doubt the crypto market will lose its grip. However, some investors may reallocate from Bitcoin or gold to the dollar in the short term. Still, it is believed that Bitcoin will still be guided mainly by basic factors, such as an increase in users and network usage.

On the other hand, Bitcoin bulls will most probably take advantage of the Fed's move and, almost regardless of price, buy the dip.



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Federal Reserve News

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Delayed US CBDC Adoption Could Spell Trouble

Custodia Bank Application Denied by the Fed

Central banking access eases for crypto banks

U.S. Fed crypto interest rate hike causes surge

Bitcoin Price Crash After Fed Raises Rates