Powell Calls for Review of Crypto Debanking, Inflation Trends Higher, and States Consider Bitcoin Reserves

Takeaways

• Powell calls for a fresh review of debanking practices that restrict crypto firms’ access to banking services: Federal Reserve chair Jerome Powell told lawmakers this week it is time to take a closer look at debanking practices that have shut out the crypto sector.
• US states looking to add bitcoin to balance sheet: More than 20 states in the US have introduced legislation to add bitcoin as a reserve asset. Utah could have a bitcoin reserve in place by May. .
• Inflation continues to rise, crypto remains volatile: The US Bureau of Labor Statistics said Core CPI was 3% in January, higher than expected. Crypto prices were volatile following the latest indicator that interest rates could stay higher for longer.
• CFTC to hold digital asset markets forum: The CEO Forum will explore a pilot program that explores the use of tokenized non-cash collateral, such as stablecoins, within US digital asset markets.
• B3 is launching bitcoin options and ETH/SOL futures later this year to boost its crypto derivatives lineup: The move aims to enhance market liquidity and attract institutional investment amid Brazil’s growing digital asset market.

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Powell Calls for Reassessment of Crypto Debanking Practices

Federal Reserve Chair Jerome Powell has urged regulators to “take a fresh look” at debanking practices that are increasingly hindering crypto firms from accessing essential banking services. During a Senate Banking Committee hearing on Tuesday, Powell acknowledged concerns raised by lawmakers about the burden imposed by current financial rules.

Republican Senator Tim Scott pressed Powell on the issue, asking if he would work with legislators to ensure that regulatory measures do not impose unnecessary obstacles. Powell responded, “We don’t intentionally do these things, but sometimes regulation leads things to happening and we need to be working on that.”

The debanking issue has come under intense scrutiny as recent hearings in both the House and Senate have spotlighted the challenges crypto firms face when establishing and maintaining bank accounts.

Crypto exchange Coinbase has previously sued the Federal Deposit Insurance Corporation, alleging that its actions were effectively cutting off the crypto industry from traditional banking channels. Powell emphasized that while banks can serve crypto clients if they manage risk appropriately, the current system needs a careful review to prevent excessive exclusion.

US States Consider Launching Bitcoin Reserves, Sparking Global Accumulation Speculation

A growing number of US states are taking steps to integrate bitcoin as a reserve asset, igniting speculation about a worldwide race to accumulate the digital currency. Recently, Kentucky introduced legislation that would allocate up to 10% of its excess state reserves into bitcoin and other digital assets and Utah could have a bitcoin reserve buying program set up as soon as May.

The move represents increasing institutional and governmental interest in bitcoin, with proponents arguing it could soon become a mainstream reserve asset. In 2024, US spot bitcoin ETFs have recorded substantial inflows, constituting 75% of all new bitcoin investment when bitcoin reclaimed the price of $50,000.

Arizona, Alabama, Florida, Massachusetts, Missouri, New Hampshire, North Dakota, South Dakota, Ohio, Oklahoma, Pennsylvania, Texas, Utah, Kansas, and Wyoming have also proposed similar bitcoin reserve measures. Meanwhile, institutions like the University of Austin and Illinois, through House Bill 1844, are advocating for a minimum five-year holding period to mitigate bitcoin’s volatility, further emphasizing its potential as a long-term, investment asset.

Inflation Continues To Rise, Crypto Prices Waver

The Consumer Price Index, a key US inflation measure that excludes food and energy prices, jumped 3% in January, higher than the anticipated 2.9% year-over-year mark. The increase was 0.5% higher than December, marking the largest monthly increase since August 2023.

The latest readings released by the US Bureau of Labor Statistics underscored the Federal Reserve’s difficult job of combatting inflationary pressure without stifling economic growth. The Reserve opted to pause cutting the federal interest rate during their January meeting because of the sticky price pressures, and Powell said during his Congressional appearance this week the committee was in no hurry to drop rates.

Traditional markets had an uneven reaction to Wednesday’s data. And the crypto markets initially pulled back, with bitcoin prices plunging below $94,000 before rallying higher and then pulling back around $95,00 by Thursday afternoon.

CFTC Unveils CEO Forum to Pilot Digital Asset Markets Program

The Commodity Futures Trading Commission (CFTC) announced that it will host a CEO Forum featuring top industry leaders to discuss its upcoming digital asset markets pilot program. The initiative aims to explore the use of tokenized non-cash collateral, such as stablecoins, within US digital asset markets.

Acting Chairman Caroline D. Pham expressed enthusiasm for the new program, stating, “I’m excited to announce this groundbreaking initiative for US digital asset markets.” Pham also emphasized the CFTC’s commitment to fostering responsible innovation and ensuring that the United States remains at the forefront of new economic opportunities.

Pham has previously advocated for a regulatory sandbox pilot program to bring clarity and establish guardrails for digital asset markets, and last year the CFTC’s Global Markets Advisory Committee recommended expanding the use of non-cash collateral through distributed ledger technology, showcasing the agency’s proactive stance in further developing its stance on digital assets.

B3 Expands Crypto Derivatives With New Bitcoin Options and ETH/SOL Futures

Brazil’s primary stock exchange, B3, is set to broaden its cryptocurrency product offerings later this year by launching bitcoin options and futures contracts for ethereum and solana. The move builds on the exchange’s existing bitcoin futures trading, which has recently generated about $860 million in monthly volume. Filings have been submitted under the 19b-4 process, marking a renewed effort by several firms to gain regulatory approval for spot solana ETFs.

B3 is reportedly aiming to provide institutional and accredited investors with more sophisticated tools for crypto exposure, and the initiative is expected to enhance liquidity for these markets. The expansion is symbolic of institutional maturation of the digital assets market, as crypto-linked financial instruments such as spot crypto ETFS see increasing global adoption.

-The Gemini Team

As part of Gemini’s ongoing mission to provide readers with real-time market analysis, we are launching "Crypto Markets Q&A,” a bi-monthly discussion with Patrick Liou, Gemini’s associate director of institutional sales. This week we get Liou’s views on tariffs, macroeconomic conditions he’s monitoring, and why crypto prices have yet to take off under president Donald Trump’s pro-crypto administration.

Generally speaking, which US macroeconomic indicators (ie jobs reports, interest rates, regulation) are we looking at here over the next few months to see how it will impact the crypto space? Is there one that we think is more important than the other?

Liou: The most important macroeconomic indicators will continue to be inflation data such as the consumer price index and personal consumption expenditures, because it is the primary determinant of the future interest rate path for the Federal Reserve (and other global central banks). For example, Wednesday’s CPI data showed inflation rose 3% YoY, an uptick from 2.9% YoY in December. As a result, stocks and crypto markets traded lower while yields rose.

Sticky and stubborn inflation data will likely leave rates at a “higher for longer” environment, while evidence of sustained cooling may greenlight the Fed to lower rates, which will be positive for crypto and risk assets generally. As a result, stocks and crypto markets traded lower while yields rose.

President Donald Trump has doubled down on the crypto space in his first few weeks in office, launching his own memecoin, signing an executive order to set up a strategic working group to look at a bitcoin reserve, and repealing SAB 121. Why do you think prices have yet to reflect these positive greenshoots?

Liou: All these positive headlines are reflected in the price action - it’s just that the greenshoots started to occur as soon as Trump appeared on track to a victory on election night. Recall the price of bitcoin was just a shade below $70K on election day. Just over a month later, bitcoin hit the $100K milestone for the first time. One could argue that the markets were efficient in pricing in the subsequent positive headlines mentioned above and the price today is justified as such.

Looking ahead, crypto markets will need incremental headlines for a further rally higher, such as nations/states/corporations allocating bitcoin on their balance sheets or stronger than expected follow through on what the market is expecting from the Trump administration.

In addition, there have been a few macroeconomic headwinds, such as Deepseek and its implications on the GPU markets, and the return of tariffs, that have been causing volatility in traditional markets that have spilled over to crypto markets.

Should crypto investors be worried about tariff tensions between the US and other countries? Are we expecting these to have more of a short-term impact or do they have the potential to have long-term ramifications for the crypto space?

Liou: Yes, tariffs will create short-term volatility in crypto markets and risk assets as a whole. We have already seen evidence of this with the tariffs to Canada, Mexico, and China and on aluminum products. Moreover, many of these tariffs have been announced during the weekends, when traditional markets are closed but crypto is open. This has led to sharp selloffs in crypto markets after the weekend tariff announcements as the only liquid trading market open.

Tariffs are inherently inflationary, which will create impacts as detailed in the first question above. However, President Trump is citing the use of tariffs as a way to bring counterparts to the negotiation table, instead of a long-term approach in imposing tariffs. This will be critical in determining what the implications of tariffs on crypto markets will be in the short and long term.

Have any topics you want tackled? Email adam.lewis@gemini.com and we’ll work in your questions for a future edition of Crypto Markets Q&A.