Regulators Should Walk the Crypto Tightrope to Stay Relevant

The Federal Reserve’s top regulatory official, Vice Chair for Supervision Michelle Bowman, has advocated for a shift in the central bank’s approach to digital assets, suggesting that staff should be permitted to hold small amounts of crypto or other digital assets to enhance their understanding of these products. In remarks delivered at the 2025 Wyoming Blockchain Symposium, Bowman emphasized that hands-on experience with crypto ownership would provide staff with a more nuanced understanding of the technology, which could inform regulatory and supervisory decisions more effectively.

Bowman highlighted that such a change could also improve recruitment and retention of expert bank examiners, as current investment restrictions may deter professionals with expertise in digital finance from joining the Federal Reserve. She noted that these restrictions, which generally prohibit Fed staff and their spouses from owning crypto or related financial products, were put in place in early 2022 following unusual trading activity among top officials during the early days of the pandemic. However, she argued that these rules may now be outdated and could hinder the agency’s ability to stay ahead of technological advancements in the financial sector.

Beyond the staff-related proposal, Bowman urged regulators to move away from an “overly cautious mindset” when dealing with emerging financial technologies. She warned that regulators who resist change risk allowing new technologies to bypass traditional banking systems entirely, thereby diminishing the role of banks in the broader financial ecosystem. She emphasized that the regulatory framework should be tailored to the unique characteristics of digital assets, rather than applying rigid, outdated guidelines.

Bowman also addressed the recent legislative developments in the crypto space, including the passage of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, which tasks banking regulators with creating a stablecoin regulatory framework. She expressed optimism that stablecoins could become a fixture in the financial system and that their adoption would depend on the development of a clear, strategic regulatory environment. She stressed that regulators must recognize the benefits of digital assets, including their potential to improve efficiency and reduce transaction costs.

The speech aligns with broader shifts in the regulatory landscape under the Trump administration, which has taken steps to support the crypto industry, including ending a specialized supervision program for crypto and blockchain-related activities. These actions reflect a growing recognition of the potential for digital assets to reshape the financial system, and regulators are increasingly encouraged to engage constructively with innovators and industry stakeholders.

Bowman concluded by reiterating the need for a balanced regulatory approach that encourages innovation while ensuring financial stability and consumer protection. She emphasized that regulators should focus on understanding the opportunities presented by new technologies rather than being overly preoccupied with risks. In doing so, the Federal Reserve aims to maintain the United States’ leadership in financial innovation and ensure that the banking system remains relevant in an evolving economic landscape.

Source:

[1] Fed's Bowman suggests allowing central bank staff to own small amounts of crypto (https://www.reuters.com/sustainability/boards-policy-regulation/feds-bowman-suggests-allowing-central-bank-staff-own-small-amounts-crypto-2025-08-19/)

[2] U.S. Federal Reserve's New Supervision Chief Sold on Bringing Crypto to Finance (https://www.coindesk.com/policy/2025/08/19/u-s-federal-reserve-s-new-supervision-chief-sold-on-bringing-crypto-to-finance)

[3] US Fed official: Staff should be allowed to hold a little crypto (https://cointelegraph.com/news/fed-staff-should-be-allowed-crypto-holdings-top-official)

[4] Speech by Vice Chair for Supervision Bowman (https://www.federalreserve.gov/newsevents/speech/bowman20250819a.htm)