Fed’s Crypto Rule Reversal Sparks Outrage—Was It All a Bait-and-Switch?

The Federal Reserve just pulled a fast one—quietly axing anti-crypto regulations that had markets braced for a crackdown. Critics call it a classic ’wink-and-nod’ to Wall Street while Main Street scrambles to decode the fine print.

Behind the scenes: Banks get backdoor access to digital assets, retail investors left holding the bag. Sound familiar? Just another Tuesday in finance.

The twist? This 180-degree pivot comes *after* crypto markets priced in years of regulatory hostility. Now the question isn’t just about policy—it’s about credibility. When the Fed flip-flops, who pays the price?

Fed favors big banks while stifling crypto custody

Caitlin said the Fed’s refusal to let banks deal with crypto directly has bigger consequences than most realize. Not only does it block Wall Street banks from making markets in major tokens like BTC, ETH, and SOL, but it also screws over banks trying to offer crypto custody.

Caitlin explained that crypto custodians usually need to estimate gas fees ahead of time. If the estimate is too low because network fees spiked, the transaction would fail. In the current setup, a bank acting as a custodian can’t pay the missing amount, which would force the transaction to die.

This issue grows even messier because custodians often split up large crypto holdings into smaller pieces to manage risk better. Every split means new on-chain transactions and more gas fees.

Caitlin said that since banks can’t pay those fees directly, the whole process becomes too risky, discouraging them from offering crypto custody services at all. In short, the Fed threw SAND into the gears for banks looking to seriously work with crypto.

Caitlin summed it up by saying the Fed effectively handed big banks a head start in launching permissioned stablecoins while making it harder for others to catch up once the stablecoin market fully opens. She added that this maneuver gives Wall Street giants an advantage now, before Congress passes the stablecoin law that would remove the Fed’s preference for permissioned systems.

Fed hides real actions while White House cheers

Caitlin criticized the Fed’s public relations stunt. She said the Fed made a big deal about all the rules it rolled back but never mentioned the critical one it kept. “The Fed definitely won on PR spin,” she wrote, adding that even smart people got fooled. She warned that now that people know the truth, they should be furious.

She said the White House praised the Fed’s actions, clearly unaware—or pretending to be—that the worst policy stayed. Caitlin said this raises questions about what the White House expected from the Fed, what the Fed promised, and how the relationship between the two might be shifting. She said most media outlets have talked about brewing fights over interest rates, but almost nobody is covering the growing tension over bank regulation.

Cynthia Lummis, the head of the Senate Banking Committee’s Digital Assets Subcommittee, was not tricked. She called the Fed’s move “lip service” and made it clear she wasn’t buying the act. Cynthia, who has serious power over digital asset rules in the Senate, could take steps to fix what she called a “deceptive maneuver.”

In her own post on X, Cynthia added, “Unlike the OCC and FDIC, the Fed STILL uses reputation risk in bank supervision.” She also said that the same Fed staffers who pushed Operation Chokepoint 2.0, the infamous Biden-era effort to pressure banks away from controversial industries, are still the ones handling crypto policy today.

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