Key Takeaways
- Fed Chair Powell supports stablecoin legislation and ends 'reputational risk' assessments for banks serving Bitcoin companies.
- U.S. banks can now provide services to Bitcoin sector with proper risk management safeguards.
- Bitcoin rebounds above $100,000 as traders anticipate potential Fed rate cuts following policy signals.
Federal Reserve Chair Jerome Powell announced sweeping changes to the central bank’s approach to digital assets on Tuesday, marking a pivotal moment for the cryptocurrency industry.
In testimony to Congress, Powell voiced strong support for stablecoin legislation while simultaneously ending the Fed’s practice of using “reputational risk” to evaluate banks’ Bitcoin-related activities.
Powell told lawmakers:
“It’s a great thing that bills are moving. We need a stablecoin framework.”
The policy announcement coincides with significant legislative momentum in Congress.
Last week, the Senate passed the GENIUS Act, which establishes a comprehensive framework for stablecoin issuance and trading.
The bipartisan bill could become law this summer if approved by the House, while the House separately considers the CLARITY Act to address digital asset market structure.
Banks Green-Lighted for Bitcoin Services
In a landmark decision, Powell announced that U.S. banks can now offer services to Bitcoin companies and engage in Bitcoin-related activities, provided they maintain proper safeguards and risk management protocols.
Powell stated:
Our view is that banks get to decide who their customers are. Banks are also free to conduct Bitcoin activities, as long as they do so in a way that is protective of safety and soundness.
The Fed will no longer consider “reputational risk” when supervising banks—a criterion previously cited against financial institutions serving Bitcoin-related businesses.
This reversal addresses what Republican lawmakers have termed “debanking” of the cryptocurrency industry under the Biden administration.
Powell acknowledged that the debanking issue became particularly prominent in 2024, calling it:
… a serious problem that we need to address.
The policy change is expected to significantly ease access to traditional banking services for Bitcoin businesses and individuals engaging in cryptocurrency transactions.
Bitcoin rallies
Bitcoin surged back above $100,000 following Powell’s announcements, recovering from a sharp decline triggered by earlier geopolitical tensions between Israel and Iran.
The rally reflects growing optimism about both regulatory clarity and potential monetary policy easing.
Market speculation around Federal Reserve rate cuts has intensified following comments from multiple officials and political figures.
Former President Donald Trump called for aggressive rate cuts of two to three percentage points, criticizing Powell as “too late” and suggesting such moves could “save the U.S. more than $800 billion per year.”
Trump posted on Truth Social, referring to Powell:
I hope Congress really works this very dumb, hardheaded person, over.
Potential policy pivot
Several key Federal Reserve officials have indicated openness to cutting interest rates despite previous concerns about inflation.
Fed Vice Chair Michelle Bowman stated at a Prague conference:
“It is time to consider adjusting the policy rate.”
While Chicago Fed President Austan Goolsbee noted that recent tariffs “have not been what people feared.”
Fed Governor Christopher Waller suggested a rate cut could come as early as July, telling CNBC:
If you’re starting to worry about the downside risk [to the] labor market, move now, don’t wait.
The Federal Reserve maintained rates during its last meeting, citing concerns that Trump’s proposed trade tariffs might reignite inflation.
However, the recent shift in rhetoric suggests policymakers are reassessing their stance.
Market outlook
According to CME FedWatch, the probability of a July rate cut has risen to 22%, up from 10% last week. Traders are closely monitoring Powell’s congressional testimony and Friday’s PCE inflation data for additional policy signals.
Ray Youssef, CEO of NoOnes, commented:
The most bullish scenario would be confirmation of a Fed dovish policy pivot or a major de-escalation in global trade and geopolitical tensions, either of which could spark renewed interest in risk assets and push bitcoin towards retesting its all-time high.
