Remember when regulators treated anything crypto-related like radioactive material? Yeah, those days feel like ancient history now.
Yesterday, on December 9th, the Office of the Comptroller of the Currency quietly published something that might turn out to be one of the most important regulatory documents of the entire bull market: Interpretive Letter 1188. In plain English, it tells national banks they can absolutely act as riskless principals in cryptocurrency transactions. And honestly? This feels like the moment the dam finally broke.
I’ve been following bank-crypto relations for years, and if you’ve been around long enough, you know this wasn’t always obvious. Let me walk you through why this matters more than most people realize.
The Big Unlock: What Riskless Principal Actually Means for Banks
Picture this: a wealthy client wants to buy $10 million worth of Bitcoin. Another client wants to sell roughly the same amount at roughly the same price. In traditional markets, banks do this all day long with stocks, bonds, forex, you name it. They match the two orders, take a small spread, and never actually hold the asset on their balance sheet.
Until now, doing that exact same thing with crypto was… complicated. Regulators had never explicitly said it was permissible, which meant most banks simply wouldn’t touch it. Risk departments hate ambiguity more than anything else.
Letter 1188 changes everything with remarkable clarity.
National banks may engage in riskless principal activities involving crypto-assets by purchasing a crypto-asset from one customer while simultaneously selling the same crypto-asset to another customer.
That’s it. That’s the sentence that just opened the floodgates.
Why “Riskless” Is the Magic Word
The beauty here is in the details. Banks don’t have to warehouse Bitcoin on their balance sheets. They don’t take price risk. They simply act as the middleman matching buyer and seller in real time. It’s the same business model that has existed in traditional finance for decades, now explicitly blessed for digital assets.
This isn’t about banks becoming crypto exchanges. This is about banks becoming the on-ramp that institutions have desperately needed.
- Wealth management clients can now trade crypto through their existing private banking relationships
- Corporate treasury departments can execute digital asset transactions without opening Coinbase accounts
- Family offices get regulated, insured counterparties instead of offshore exchanges
- Banks earn fee income without balance sheet exposure
Everyone wins.
2025: The Year Banking Regulations Did a Complete 180
To understand how dramatic this shift really is, we need to zoom out and look at what happened throughout 2025. This wasn’t a single event; it was a systematic dismantling of every regulatory barrier built during the 2022-2023 crypto winter.
Let that sink in for a second.
Just three years ago, banks needed special permission to even touch crypto custody. The infamous SAB 121 accounting rule forced them to hold customer crypto on balance sheet at full value, making the economics impossible. Regulators issued supervisory letters that read like warning labels.
Then 2025 happened.
- March: FDIC eliminates pre-clearance requirements for crypto activities
- March: OCC rescinds Letter 1179 and reaffirms custody is core banking
- April: Federal Reserve withdraws its restrictive 2022-2023 crypto guidance
- May: OCC clarifies banks can outsource custody to qualified third parties
- July: Joint statement from all three agencies confirming safekeeping services are permissible
- November: Banks allowed to hold tiny amounts of native tokens for gas fees
- December: Riskless principal trading explicitly authorized
It’s not just that barriers were removed. The agencies went out of their way to affirm that these activities are normal, permissible, and part of the business of banking. That’s a complete philosophical reversal.
The Real-World Impact Nobody’s Talking About (Yet)
Most commentary will focus on how this helps banks make money. Fair enough. But in my view, the bigger story is what this does to crypto market structure.
Right now, institutional money flows through a handful of venues. The liquidity is fragmented between ten different exchanges, OTC desks, and prime brokers. Spreads are wider than they need to be. Settlement takes longer than it should.
When Bank of America, Wells Fargo, and JPMorgan start routing customer crypto flow through their existing trading desks? Everything changes.
Think about the implications:
- Tighter spreads as banks compete on execution quality
- Faster settlement through existing banking rails
- Direct integration with traditional portfolios and reporting
- Credit facilities against crypto collateral become trivial
- Corporate treasuries can hold Bitcoin alongside their cash management accounts
This isn’t just about trading. This is about crypto becoming boring, in the best possible way. When digital assets are just another asset class sitting in your Morgan Stanley account alongside your S&P 500 ETF, we’ve officially entered the institutional adoption phase.
The Requirements Banks Still Have to Meet
Before anyone gets too excited, this isn’t a free-for-all. The OCC was very clear about the guardrails.
Banks must offset positions immediately. There’s no room for proprietary trading or taking market risk. These transactions have to be truly riskless, with both legs executed simultaneously. AML/BSA compliance remains non-negotiable. Third-party risk management standards apply if they’re using external execution venues.
In other words, this is regulated finance doing regulated finance things. Just with crypto.
The activities must be conducted in compliance with applicable law and safe and sound banking practices.
— OCC Interpretive Letter 1188
But here’s the thing: banks already have all these controls for their existing trading businesses. Extending them to crypto isn’t particularly burdensome. It’s just… allowed now.
What Happens Next: My Predictions
Having watched these regulatory shifts for years, I have some thoughts on how this actually plays out.
First movers will be the usual suspects. The big banks with existing crypto custody businesses—BNY Mellon, State Street, maybe Northern Trust—will likely roll out matched-principal trading desks within months. They’ve already built the infrastructure.
Regional banks will move slower. Many still don’t have crypto custody approvals. But the ones that do? They’ll see this as a competitive necessity.
The dark horse here is the wealth management channel. Private banks serve exactly the demographic that owns most Bitcoin—high net worth individuals who want to keep everything under one roof. When your relationship manager can execute your BTC trade alongside your municipal bond ladder, why would you ever use a retail exchange again?
And let’s not forget about stablecoins. The same riskless principal framework applies perfectly to dollar tokens. Banks could start matching USDC and USDT flow internally, potentially creating the deepest liquidity pools in the entire ecosystem.
The Bigger Picture: Crypto’s “Legitimacy Moment”
I’ve been waiting for this moment for a long time.
Every bull market has a “legitimacy moment” when institutions finally decide crypto is here to stay. In 2017 it was futures. In 2021 it was corporate treasury adoption and ETFs. In 2025?
This is it.
When the most risk-averse institutions on planet Earth—American commercial banks—are not just allowed but encouraged to facilitate crypto trading, the narrative changes permanently. The “is crypto real?” debate ends. We move on to “how much exposure should we have?”
That’s when the real money shows up.
Letter 1188 might not make headlines like spot ETF approvals, but mark my words: historians will look back at December 2025 as the month traditional finance and crypto finance officially merged.
The revolution wasn’t televised. It was published in a regulatory interpretive letter on a random Tuesday in December.
Welcome to the future.
