The Financial Stability Oversight Council (FSOC) has signaled a landmark shift in the United States' approach to digital assets, notably excluding them from its list of financial-system vulnerabilities in its 2025 annual report. This significant reclassification moves crypto from a high-alert "priority area" to a more neutral "significant market developments to monitor" category, reflecting a coordinated policy pivot towards integrating digital assets into the traditional financial system.
A Fundamental Shift in Regulatory Stance
For three years, digital assets, particularly stablecoins, were framed by FSOC as potential contagion channels requiring new legislation and cautious bank supervision due to their perceived risks, including vulnerability to runs and market volatility. The 2025 report marks a stark departure, removing the term "vulnerability" entirely in relation to digital assets. Instead, it acknowledges their growth, increasing institutional participation through products like spot Bitcoin and Ethereum ETFs, and the potential for tokenization of traditional assets. This strategic re-evaluation suggests a growing confidence among US regulators in managing the sector's evolution, with Treasury Secretary Scott Bessent reframing FSOC's mission to prioritize long-term economic growth alongside financial stability.
Coordinated De-escalation Across US Agencies
This policy reversal is not an isolated event but a coordinated de-escalation across multiple government agencies. Firstly, President Donald Trump's Executive Order 14178 revoked the previous administration's more cautious stance, actively supporting the "responsible growth and use of digital assets" while banning a US central bank digital currency. Secondly, Congress delivered the much-needed regulatory clarity through the GENIUS Act in July 2025. This legislation establishes a framework for "permitted payment stablecoin issuers," mandates 100% backing, and designates federal oversight by the Fed, OCC, and FDIC, transforming stablecoins from unregulated threats into supervised dollar infrastructure. Lastly, bank re-engagement is being actively facilitated: the SEC rescinded SAB 121, easing balance sheet requirements for custodial crypto assets, while the OCC issued guidance permitting banks to act as intermediaries in crypto transactions and hold native tokens for operational fees, further granting federal trust bank charters to prominent crypto-native firms.
Implications and Remaining Hurdles
The FSOC's revised stance significantly reduces the "macroprudential stigma" that previously deterred large financial institutions from deeper crypto engagement, lowering the likelihood of restrictive new rules. It normalizes institutional exposure via ETFs and provides a cleaner legal pathway for banks to participate in the underlying infrastructure, such as holding stablecoin reserves and facilitating tokenization. However, caution remains, particularly from global watchdogs like the Financial Stability Board (FSB) and the Financial Action Task Force (FATF), which still highlight "significant gaps" in crypto regulation, illicit finance risks, and cross-border vulnerabilities. While the US de-escalates its systemic risk concerns, robust anti-money laundering (AML) and sanctions compliance will remain paramount. The challenge ahead for Bitcoin and the broader crypto market lies in navigating potential "policy whiplash" from future political shifts and ensuring that existing regulatory frameworks can withstand stress events as integration with traditional finance continues to deepen.
