Fed Governor Waller: Crypto Euphoria Ebbs as Wall Street Links Deepen

Federal Reserve Governor Chris Waller said the exuberant run-up in cryptocurrencies has moderated as traditional financial institutions and institutional investors take larger, more disciplined positions in token markets, removing a portion of speculative amplitude. He linked that ebb in headline fervor to banks’ internal risk controls and periodic portfolio rebalancing, which can blunt momentum once institutional flows stop adding leverage. Waller described a Fed proposal to create narrow central-bank account access for certain nonbank payment and fintech firms — a deliberately constrained conduit that would deny interest on balances, exclude participants from Fed credit windows, and impose balance caps to limit spillovers to the payments and reserve system. The draft framework has prompted a compact but intense response from industry: regulators recorded dozens of public comments that split along expected lines, with crypto-aligned firms and payments groups praising the rails while many banking trade associations urged greater governance and supervisory preconditions. While Waller signaled an intention to move toward finalizing the approach within the year if practical, other Fed officials and observers have warned the timetable could stretch as the agency weighs operational details and political headwinds. Those headwinds include broader politicization of central-bank leadership and a Justice Department inquiry that has drawn additional market attention to the Fed’s governance environment. Market indicators this week reinforced the sense of a recalibration: spot ETF flows have been episodic, with one-day institutional ETF withdrawals topping $1 billion on risk-off days, even as some spot product activity remains a recurring liquidity source. Corporate and exchange maneuvers — from Binance’s decision to convert a large insurance reserve into bitcoin to incumbent firms integrating crypto offerings into mainstream consumer products — further complicate how and where liquidity is held. For practitioners, the policy moment is one of trade-offs: narrower Fed access could reduce settlement frictions and spur operational integration, but the permitted features and supervisory perimeter will determine whether risks concentrate on the Fed’s balance sheet or are absorbed through regulated intermediaries. The final design of the accounts will shape custody, clearing and counterparty norms, and could either unlock fresh institutional flows or, if contours remain unclear, prolong volatility and capital flight. In aggregate, Waller’s remarks depict a transition from headline-driven speculation toward a phase where prudential architecture, legislative clarity and supervisory rigor determine the pace and durability of institutional involvement.