Crypto Assets enter the banking sector! The US OCC approves holding coins to pay Gas fees, marking a significant change in regulation.

On November 18, the Office of the Comptroller of the Currency (OCC) issued interpretive letter 1186, confirming that national banks may hold and use Crypto Assets as principal for paying Blockchain network fees (such as Gas fees) to support their legitimate operational activities. Furthermore, banks may also hold Crypto Assets for testing proprietary or third-party platforms. The OCC emphasized that such operations must be conducted in compliance with regulations and sound banking practices.

OCC Explanation Letter 1186's Historic Breakthrough

(Source: OCC)

On November 18, OCC stated that U.S. banks are permitted to hold crypto assets on their balance sheets to pay for network fees or Gas fees, provided that these transactions are used for allowed activities. The regulator indicated that authorized national banks “may hold the necessary amount of major cryptocurrencies to test other permitted crypto assets related platforms.” OCC stated: “As with any activity, national banks must conduct these activities in a safe and sound manner and comply with applicable laws.”

This seemingly technical regulatory guidance is, in fact, a milestone in the integration of the U.S. banking industry with crypto assets. Prior to this, U.S. banks existed in a legal gray area regarding whether they could directly hold crypto assets. Most banks opted to provide crypto services to customers through third-party custodians, avoiding direct exposure to crypto assets themselves. The clear permission from OCC eliminates this uncertainty and opens the door for banks to participate directly in blockchain networks.

Core Content of OCC Explanation Letter 1186

Balance Sheet Holdings: Banks can record crypto assets on their balance sheets as operational assets rather than merely holding them on behalf of clients.

Gas Fee Payment: Banks can use their own crypto assets to pay network fees when executing transactions on the blockchain.

Testing and Development: Banks may hold the necessary amount of crypto assets for testing self-developed or third-party blockchain platforms.

Compliance Prerequisite: All operations must comply with safety and soundness principles and applicable laws, and require an appropriate risk management framework.

The permission for Gas fee payment may seem like a detail, but it is actually of great significance. When banks want to execute smart contracts (such as issuing tokenized assets or executing cross-border payments) on Ethereum or other Blockchains, they must pay Gas fees. Previously, banks needed to handle these payments through complex legal structures and third-party intermediaries, increasing costs and legal risks. Now, banks can directly hold ETH or other native coins to pay Gas fees, significantly simplifying the operational process.

Testing and development permissions are equally critical. Banks need to conduct thorough technical testing and risk assessments before deciding whether to fully adopt a particular blockchain platform. This requires executing a large volume of transactions on a testnet or mainnet, which inevitably involves the holding and use of crypto assets. The OCC's permissions provide legal protection for banks' innovative experiments, encouraging them to explore application scenarios of blockchain technology.

Two years ago still warning, now policy makes a 180-degree turn

Fox News reporter Eleanor Terrett commented that two years ago, prudent regulators warned banks that directly issuing or holding public chain crypto assets “is highly likely not to comply with sound banking practices.” Now, the U.S. OCC has confirmed that banks can legally hold and use them to pay network fees, marking a significant change in the industry. This 180-degree policy turnaround highlights a fundamental shift in the U.S. regulatory stance under the Trump administration.

At the beginning of 2023, against the backdrop of the Biden administration's “Operation Chokepoint 2.0,” multiple regulatory agencies adopted an extremely cautious and even hostile attitude towards the relationship between banks and Crypto Assets. The guidance jointly issued by the OCC, the Federal Reserve, and the FDIC suggests that banks participating in Crypto Assets businesses may face stricter capital requirements and regulatory scrutiny. This policy environment has led to the closure or exit from Crypto Assets businesses of several crypto-friendly banks (such as SilverGate and Signature Bank), prompting American crypto enterprises to shift their operations overseas.

Today, under the leadership of the Trump administration, the OCC's attitude has undergone a fundamental shift. The notice expands on a letter from May, which informed banks that they could handle digital assets on behalf of customers and outsource certain crypto asset activities to third parties. Both sets of guidelines were issued against the backdrop of the OCC adopting a different stance on crypto assets and easing regulatory burdens on financial institutions under President Trump.

The speed of this policy shift is astonishing. In just two years, the direction of U.S. banking regulation has undergone a complete change from “highly likely not in compliance with sound business standards” to “can be legally held and used.” This shift is not an isolated event but part of the Trump administration's systematic push for the mainstreaming of crypto assets. A series of policies, including the change in SEC chair, the Department of Justice reducing investigations, and allowing pension funds to invest in crypto assets, together constitute a historic turning point in U.S. crypto regulation.

From the perspective of the banking industry, such policy clarity is extremely valuable. In an environment of regulatory uncertainty, even if banks are optimistic about the potential of Blockchain technology, they dare not rashly invest resources in developing related businesses. The clear permission from OCC has eliminated legal concerns and cleared the way for banks to fully embrace Blockchain technology. It is expected that more U.S. banks will announce Blockchain-related businesses in the coming months, including stablecoin issuance, tokenized asset custody, and cross-border payment services.

GENIUS Stablecoin Bill Safeguards Banking Crypto Business

The letter on Tuesday referenced the GENIUS stablecoin bill signed into law in July, which establishes a regulatory framework for payment stablecoins. According to the OCC, stablecoin transactions conducted by authorized national banks may be subject to network fees, allowing banks to pay through their custodial assets or agents. This clear legal connection indicates that the OCC's new guidance is not an isolated regulatory decision but is designed in conjunction with a broader framework of crypto legislation.

The GENIUS Stablecoin Act is the first comprehensive stablecoin regulatory legislation in the United States, setting clear standards for the issuance, reserve requirements, redemption mechanisms, and regulatory framework of payment stablecoins. The passage of this act provides a legal basis for banks to issue stablecoins, while the new guidance from the OCC addresses the technical details of banks operating stablecoins on the Blockchain. Together, they form a complete legal framework for banks to fully enter the Crypto Assets business.

The technical reality that stablecoin transactions require payment of network fees makes the OCC's permission indispensable. Suppose a bank issues a USD stablecoin based on Ethereum; each time a user exchanges, transfers, or redeems, it is necessary to execute a smart contract on-chain, which will inevitably incur network fees. If the bank cannot hold ETH to pay these fees, the entire business model will not be able to operate. The OCC's permission is formulated based on this practical need, demonstrating that regulators' understanding of blockchain technology is deepening.

Allowing banks to pay network fees through their custodied assets or agents provides operational flexibility. Banks can choose to directly hold ETH or other native coins, or they can handle it indirectly through a custodian or agent. This flexibility allows banks of different sizes and risk appetites to find a participation method that suits them. Large banks may choose to establish a complete internal infrastructure, while small and medium-sized banks can opt to outsource to professional service providers.

Although the stablecoin legislation was signed into law in July, it may take several months before it is implemented, as the U.S. Treasury and the Federal Reserve need to finalize the related regulations. While this regulatory process is slow, it ensures the enforceability and stability of the policy. In the meantime, OCC's guidance provides banks with a basis for early positioning, allowing them to start technical preparations and internal process construction before the regulations are fully implemented.

Market Structure Bill Promotion, Accelerating the Integration of Banks and Crypto Assets

At the same time, reports indicate that legislators in the U.S. Senate are advancing negotiations to pass the Digital Asset Market Structure Act, which is considered by many in the industry to be the most important cryptocurrency-related legislation currently under consideration. This bill aims to clarify the legal status of crypto assets, delineate regulatory authority, and establish market operating rules, providing long-term legal certainty for the entire crypto industry.

The Market Structure Bill is closely linked to the new guidelines from the OCC. If the bill passes smoothly, it will establish the legal status of crypto assets in the U.S. financial system at a higher level, while the OCC's guidelines provide specific operational instructions for bank participation. Together, they will form a complete regulatory system from the macro framework to the micro details. Senator Tim Scott revealed that the Market Structure Bill will undergo committee review and voting next month, and it is expected to legislate in the Senate plenary session early next year. This timeline indicates that U.S. crypto legislation is advancing rapidly.

From a global competition perspective, these policy changes in the United States are aimed at regaining leadership in the encryption regulatory field. Under the strict regulations of the Biden administration, many American crypto companies have chosen to register in Singapore, Hong Kong, or the European Union. The Trump administration attempted to attract these companies and funds back to the United States through friendly regulations, making the U.S. the “world capital of crypto assets.” OCC allowing banks to hold crypto assets is a key step in this grand strategy.

For traditional banks, these policy changes present both opportunities and challenges. The opportunity lies in the ability of blockchain technology to significantly reduce cross-border payment costs, enhance settlement efficiency, and create entirely new asset custody and wealth management services. The challenge is that banks need to invest substantial resources to build technical capabilities, train talent, and redesign risk management frameworks. In the highly regulated banking sector, the launch of any new business requires strict internal approval and regulatory filings.

However, the clarity of the policy will accelerate this process. When the legal framework is clear, the legal and compliance departments of banks will find it easier to approve crypto-related business, and management will be more willing to allocate resources. It is expected that in the next 6 to 12 months, more large banks in the United States will announce crypto assets and blockchain-related businesses, including stablecoin issuance, tokenized securities custody, and blockchain payment services.