This year began with an executive order stating the Trump Administration’s policy to establish the U.S. as a global leader in the responsible growth and innovation of digital assets and related blockchain technologies. In July, President Trump signed into law the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins), 12 U.S.C. §§ 5901 et seq., which recognized a dual federal-state regulatory framework for payment stablecoin issuers, while also codifying related foundational definitions, such as “money” and “digital assets.”

The digital asset ecosystem — and looming regulatory frameworks — are much larger than the issuance and remittance of fully reserved payment stablecoins. On July 31, 2025, the President’s Working Group on Digital Asset Markets released a 160-page report, titled “Strengthening American Leadership in Digital Financial Technology,” which begins: “The American story is one of innovation. From the railroads that linked sea to shining sea, to the internet that connected the entire world, American entrepreneurs have led the buildout of next-generation technologies in every generation since our founding. Crypto should be no different.”

Federal Reserve Governor Michelle Bowman, vice chair for supervision, gave a speech on Aug. 19, 2025, at the Wyoming Blockchain Symposium titled “Embracing Innovation,” referencing the “seismic” and transformative shift in society and the banking industry that is underway and the “reframing” of supervision and regulatory mindsets. Recognizing safety and soundness in the banking system will always be the paramount focus, she noted an equal need for the banking industry to innovate to serve its consumers, businesses and communities, and to foster economic growth. Despite past inertia in the adoption of blockchain technologies, Governor Bowman stated, “Change is coming.” Her response to those in banking who express concern about new technologies being a threat to the banking sector was: “We must choose whether to embrace the change and help shape a framework that will be reliable and durable — or stand still and allow new technology to bypass the traditional banking system altogether.” From her perspective, “the choice is clear.”

This article provides a high-level overview to inform the question of what “crypto” is, followed by a brief summary of the pending legislation and rulemakings that will continue to add clarity to the ability of banks to engage with the digital asset ecosystem. Lastly, a review of the existing regulatory guidance reveals which activities are currently considered “legally permissible” and within the “business of banking,” culminating in considerations that banks can explore when formulating a long-term strategy as the digital asset ecosystem and the law of permissibility continue to evolve.

What Is Crypto?

The word “crypto,” as used today, has undergone an interesting evolution, one that is understood by few and not clearly defined, despite its mainstream adoption. The Digital Assets Working Group Report defines the term “crypto” for purposes of the report as an entire “ecosystem and technologies built around digital assets and blockchains, including the users, developers, businesses and enthusiasts engaged in these domains.”

Notably, the word crypto is not referenced or used within the body of Satoshi Nakamoto’s 2008 white paper, “Bitcoin: A Peer-to-Peer Electronic Cash System,” which was the impetus for the subsequent launch of the bitcoin distributed public ledger. Rather, in the words of the now infamous creator of bitcoin — fueled in 2008 by the global financial crisis — “what is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a third party.” This spurred modern-day interest in the application of blockchain technologies to launch payment systems and “cryptocurrencies” beyond the original bitcoin protocol.

Before cryptocurrency became mainstream, there was cryptology, a long-studied field that included cryptography as a means of creating code for secure communication, including by the U.S. government. According to the U.S. Department of Commerce, “public-key cryptography was invented in 1976.” According to the National Institute of Standards and Technology (NIST), in “today’s connected digital world, cryptographic algorithms are implemented in every device and applied to every link to protect information in transmission and in storage.” Crypto has rapidly evolved in scope and application from shorthand for the “cryptographic proof” used to validate blockchain transactions, to shorthand for the countless varieties of “cryptocurrencies” launched since 2009, to now embracing an entire ecosystem of developing technologies, markets, and the varied stores of value and payment rails upon which they run. 

Although regulatory frameworks and mainstream adoption may feel new, the underlying concept of distributed ledgers as payment vehicles is not. Nakamoto’s white paper cites articles published in the 1980s, 1990s and early 2000s within the cryptology field relating to studies on how to digitally time-stamp documents through cryptographic means. However, it wasn’t until Nakamoto’s white paper proposed the use of cryptography, together with a decentralized and distributed ledger to create a digital asset that did not rely on intermediaries for settlement, that the bitcoin blockchain protocol became globally adopted in a decentralized manner through network effects. That global adoption only further ignited innovation and the exploration of borderless and trustless global ledgers, leading to the GENIUS Act, regulating stablecoins and pending market structure legislation.

Digital assets are built on blockchain technology. The Bank for International Settlements published a working paper in 2023 titled “Distributed Ledgers and the Governance of Money,” exploring the economics and feasibility of various models of future global decentralized payment systems built on blockchain, and their limits, noting, “[M]oney, whether it be in the form of clay pots, precious coins or banknotes, is a social convention that serves as a record of goods sold or services rendered in the past. … [Today’s] centralized record-keeping system has been effective. However, the advent of blockchain technology and the concept of a free universal ledger of all past transactions, offers an alternative monetary system that eliminates the need for intermediaries …” 

In its simplest form, money is a medium of exchange requiring a ledger. Blockchain technologies innovate new ways to maintain a ledger and track exchanges of value quickly, efficiently and without third parties. When talking about any strategic or business use case for blockchain technology, digital assets or crypto in all forms, it is critical to understand not only the newly created legal definitions, but also the underlying technologies, applications, and applicable laws and regulations as the ecosystem develops. For all these reasons, it is essential to openly question and explore precisely what crypto means and how the term is being used. 

Further Clarity To Come

Despite rapid-fire developments since the Executive Order was issued and the passage of the GENIUS Act — which kicked off an entire industry discussion on stablecoins — there is much more regulatory clarity to come that banks need to form a robust, effective, long-term digital assets strategy. Of note:

1. Working Group Recommendations. The Digital Asset Working Group Report includes over 100 policy and legislative recommendations to Congress and the relevant agencies that touch the crypto-ecosystem, digital assets and related markets. Specific to the banking sector, the report calls for specific guidance on the activities banks are most likely to engage in (custody, third-party relationships, stablecoin reserves and holding digital assets as principal); technology-neutral and principles-based risk management guidance, which could include the development of NIST-based or NIST-like standards; clarifying AML/CFT compliance expectations; and capital and liquidity management guidance. 
2. GENIUS Act Implementation and Regulations. Although GENIUS was signed into law on July 18, it does not take effect until July 2026, at the earliest, once implementing regulations have been passed. The GENIUS Act requires a “coordinated” rulemaking process to occur within one year, involving numerous federal and state regulators, including the Department of the Treasury, the OCC, the Federal Reserve and state regulators. 
3. Digital Asset Market Structure Legislation. Outside of payment stablecoins, there is markedly less clarity on the future state of market structure regulation across the ecosystem. On July 21, 2025, the Senate Banking Committee circulated its 35-page Clarity Act Discussion Draft, along with a related request for information that included 74 separate inquiries to the industry. The discussion draft was significantly shorter than the 245-page version of the House draft, focusing largely on securities laws with limited attention to the commodities side of the market. Given the volume of industry feedback received and the differences between the House and Senate versions of the Clarity Act, it seems possible that market structure clarity may not occur in 2025. 
4. SEC Project Crypto and the CFTC Crypto Sprint. SEC Chair Paul Atkins announced on July 31 in a speech the launch of “Project Crypto,” emphasizing the need for the U.S. financial markets to be at the epicenter of the global crypto ecosystem. More recently, on Aug. 21, CFTC Acting Chairman Caroline D. Pham announced the CFTC’s Crypto Sprint, which has the stated aim of implementing the recommendations outlined in the Digital Asset Working Group’s report. In her words: “The Administration has made it clear that enabling immediate trading of digital assets at the Federal level is a top priority.”

The “Business of Banking” in a “Crypto” Era

Digital assets have proven to be a technological disruptor to the traditional “business of banking.” However, the legal authority of banks to participate in the crypto-industry has been recognized by the federal banking regulators since as early as 2020, when the OCC issued a trilogy of Interpretive Letters (IL 1170, IL 1172, IL 1174), regarding the types of digital asset services that fall within the statutory sphere of the “business of banking” for national banks. Those activities include directly or indirectly providing cryptocurrency custody services, holding cash deposits to reserve against stablecoin tokens, and acting as nodes on distributed ledgers to verify and facilitate payment transactions. 

The GENIUS Act further clarified that nothing within the text limits the authority of a depository institution to engage in the following activities: 

1. Accepting or receiving deposits or shares and issuing digital assets that represent those deposits or shares (tokenized deposits); 
2. Utilizing a distributed ledger for the books and records of the entity and to effect intrabank transfers (private blockchain technologies for intra-bank functions); and 
3. Providing custodial services for payment stablecoins, private keys or reserves backing payment stablecoins (custody services).

In a more recent Interpretive Letter (IL 1184), the OCC reaffirmed that banks are authorized to provide crypto-asset custody services, both in fiduciary and non-fiduciary capacities, directly and through third-party sub-custodial arrangements. The opinion cites long-standing legal precedent recognizing that, as the powers of national banks have been tested over time, they “must be construed so as to permit the use of new ways of conducting the very old business of banking.” The types of custody-adjacent activities the OCC has previously recognized as authorized for national banks include facilitating fiat exchange and trade transactions, settlement, trade execution, record-keeping, valuation and tax services. The most recent clarification also confirmed that national banks may “buy and sell” assets that are held in custody at the direction of a customer. On July 14, 2025, the Federal Reserve, FDIC, and OCC issued a joint statement reiterating the importance of risk management and confirming that banks providing custody (safekeeping) services for digital assets are expected to comply with all applicable laws, regulations and fiduciary requirements. 

Forward-Looking Strategy

The banking industry is justifiably trying to understand its role in the burgeoning digital assets ecosystem that has largely been developing around it. After all, Nakamoto’s white paper, which initiated the revolution, began with the recognition that commerce online has “come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments,” and concludes by proposing the design of a system that need not rely on such intermediaries. 

A good starting point for any strategy would be to review the Working Group’s recommendations targeted at the banking industry and its regulators. Earlier this year, Acting Chairman Travis Hill stated that “looking forward,” the FDIC was “actively reevaluating [its] supervisory approach to crypto-related activities. This includes … providing a pathway for institutions to engage in crypto- and blockchain-related activities while still adhering to safety and soundness principles.” Similarly, OCC Acting Comptroller Rodney Hood included “accelerating bank-fintech partnerships” and “expanding responsible engagement with digital assets” as two of the agency’s top four priority strategies for the industry in his remarks to the U.S. Chamber of Commerce Capital Markets forum on June 3, 2025. In addition to gathering industry feedback from community banks on their ability to leverage digital technology, the OCC launched a “Digitalization: Resources for Community Banks” website earlier this year, which compiles resources specific to community banks on topics such as safety and soundness, risk management and guidance related to emerging technologies.

Governor Bowman concluded in her recent remarks on Embracing Innovation: “We stand at a crossroads: We can either seize the opportunity to shape the future or risk being left behind. By embracing innovation with a principled approach, we can define the course of history and fulfill our responsibility to promote the safety and soundness of the banking system and financial stability. … Innovation and regulation don’t need to be on opposite ends of the spectrum. In fact, they complement each other. A more modern, efficient and effective financial system furthers key regulatory objectives — promoting safe and sound banking operation, financial stability and economic growth.”

With a macro-view in mind, the broader questions facing the banking industry are not whether to issue a stablecoin and when banks will be “disintermediated” out of payments. All banks are wise to begin formulating institution-specific strategies with both a short-term view (think stablecoin) and a long-term view (think bitcoin, tokenization, blockchain and the digital assets ecosystem). The wide array of variabilities taking shape as impacting the banking industry includes, but is not limited to: 

• Centralized vs. decentralized strategies;
• Issuing stablecoins vs. banking payment stablecoin reserves;
• Public vs. private blockchain solutions; 
• Cross-industry blockchain technologies to be deployed domestically or globally; 
• Tokenized assets and deposits; 
• Intra-bank distributed ledger functionality; 
• Fully reserved strategies that may remove the need for deposit insurance; 
• Direct and third-party custodial solutions; 
• Corporate treasury products and related strategies; 
• Collateralization of digital assets; and
• Evolving customer expectations and demands that can impact deposit bases.

If nothing else, now is the time to learn and lean into a rapidly developing regulatory framework, allowing banks to participate and avoid becoming disintermediated. Many of the largest banks have publicly announced their involvement in the digital asset ecosystem. Some have already been incubating blockchain strategies for years. Embracing innovation through informed strategy is no longer limited to innovators and early adopters. The time is now to craft a digital asset strategy or risk being left behind.