The FDIC is now on the verge of employing a cryptocurrency custodian to assist it to store and sell digital assets like crypto when a bank fails.
According to sources familiar with the matter, the federal government is planning to hire Anchorage, a San Francisco-based firm, to assist it in storing and selling any Bitcoin and other digital assets it receives as a result of a bank failure.
The business and the FDIC are in the final stages of signing a deal, according to the sources, who were not authorized to speak for attribution.
The Justice Department engaged Anchorage earlier this year to assist the United States Marshalls Service, which is in charge of warehousing and auctioning the goods seized by the FBI, DEA, and other law enforcement agencies.
Anchorage, the first cryptocurrency startup to be granted a federal bank charter earlier this year, also provides custody services to Visa and large institutions.
Given how an increasing number of banks are exposed to cryptocurrency—either directly by storing it on their balance sheet or indirectly by facilitating clients’ ability to acquire—the FDIC’s decision to engage a crypto custodian would not be surprising.
Crypto is also increasingly being used as loan collateral, which is likely to become another avenue for traditional financial institutions to become involved with digital assets.
All of this highlights how the banking system—and the federal authorities who supervise it—are becoming increasingly linked to the cryptocurrency business, despite their scepticism about many aspects of digital currency.
It’s unclear whether the FDIC will consider offering investor protection to those who deposit their digital assets with services like Coinbase or Gemini, which are beginning to resemble traditional banks in many respects.
Currently, such protection consists of $250,000 in deposit insurance on a limited number of products such as checking and savings accounts, as well as certificates of deposit.
The FDIC’s backstop is supported by bank deposit insurance, which mainstream crypto businesses would like to provide in exchange for the agency’s guarantee—a guarantee that may entice even more retail investors to invest in crypto.
However, not everyone thinks the FDIC backstop is as valuable as it once was. Ross Gerber, a financial management mogul and crypto supporter, lambasted the agency at Decrypt’s Ethereal conference earlier this year.
“The Federal Deposit Insurance Corporation (FDIC) does not exist. That’s a complete fantasy. The first rule is that every promise made by the US government is a dream. We don’t have any money, we owe a trillion dollars, and we’re broke “Gerber stated.
“So if the banks fail, if JP Morgan fails, the FDIC will cover 0% of the loss. This has happened to us. It’s a logical fallacy. Banks are the worst-run institutions in the United States. The biggest mistake I’ve ever heard is thinking that this provides some degree of financial security “he stated
