Crypto is winning its challenge to traditional banks

Two developments this week capture how the world of decentralized finance and cryptocurrency is winning in its efforts to challenge traditional banks.

Driving the news: On Wednesday morning, Kraken Financial, a cryptocurrency-focused bank in Wyoming, announced it has been granted a limited master account from the Federal Reserve.

• It's a win for the crypto sector after years of fights, in which banks have sought to keep their unique access to the Fed's payment rails on which trillions of dollars flow.
• Separately, in a social media post late Tuesday, President Trump seemingly sided with the stablecoin industry in a lobbying battle with banks over whether stablecoins can offer rewards that resemble interest.
• The Genius Act, which established a legal framework for stablecoins, "is being threatened and undermined by the Banks, and that is unacceptable," Trump wrote.

Between the lines: Both developments are signs that the Biden-era deep skepticism of cryptocurrency and its cousins is long gone.

• Rather than being walled off from the mainstream financial system, novel decentralized financial products and business models are being embraced, both in the White House and the halls of the Fed.

State of play: Kraken has pushed for access to a Fed master account for years, and another crypto-focused bank, Custodia, sued over the issue.

• The Fed has been traditionally reluctant to give companies with unproven business models and unknown risks access to the systems that are the "circulatory system of our $30 trillion economy," as Kansas City Fed president Jeff Schmid put it in a speech this week.
• Kraken, a subsidiary of Payward Financial, is being granted a "limited purpose account," the Kansas City Fed said Wednesday morning, for an initial term of one year with "restrictions and limitations tailored for Kraken Financial's business model and risk profile that are appropriate to mitigate risks."

Of note: The banking industry is none too pleased. The Bank Policy Institute said in a statement that it is "deeply concerned" and that the access "was issued with no transparency into the process for approval or the risk mitigants that have been imposed to address the very significant risks it raises."