On May 24, the acting Comptroller of the Currency, Michael Hsu remarked at the DC Blockchain Summit 2022 about his observations on the “deep” vulnerabilities of cryptocurrency in light of the recent market volatility and other events in the crypto economy.  Hsu emphasized three vulnerabilities in particular:
Fragmentation and hacks: With new blockchains being added daily, the crypto ecosystem has become increasingly fragmented, which presents interoperability issues. Cross-chain bridges, although providing a solution to these issues, are highly prone to being hacked.
Contagion risks: The highly interconnectedness of the crypto ecosystem presents real contagion risks. As evidenced by the recent collapse of a popular algorithmic stablecoin, which caused another stablecoin to drop in value.
Custody and ownership rights: The lack of clear standards for the ownership and custody of digital assets puts consumers at risk, and is underdeveloped given the size, scope, and ambitions of the industry. For example, the largest U.S. centralized exchange recently disclosed that its users would be at risk of becoming unsecured creditors if the exchange were to file for bankruptcy.
Hsu also observed that despite the volatility and loss of market capitalization after the recent stablecoin collapse, there has been no stress to traditional banking and finance due to crypto exposure, a result which he attributes, at least in part, to federal bank compliance and intentional emphasis on safety, soundness, and consumer protection.  Hsu found this to be a result of the OCC’s “careful and cautious” approach to banks seeking to join the crypto economy, referenced in Interpretive Letter 1179 issued last year (we previously discussed this letter in a blog post here).
Putting It Into Practice:  Admittedly a “crypto skeptic,” this is not the first time Hsu has voiced concern with the industry.  He also recalled his previous warnings of risks in the crypto space in speaking to the Blockchain Association last year (which we blogged about here).  Nonetheless, Hsu also remarked that he has “come to see its potential and understand[s] why there is excitement around it.”  Although this may signal the OCC’s willingness to consider other permissible cryptocurrency activities for banks in the future, Hsu’s recent remarks are clear that the OCC continues with a careful and cautious approach to crypto and will hold banks to the same.
About this Author
Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm’s Los Angeles and San Francisco offices. 
Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations,…
A.J. is an associate in the Finance and Bankruptcy Practice Group in the firm’s Washington, D.C. office. 
A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations.
With a diversified regulatory, compliance, and enforcement background, A.J. counsels financial institutions in matters involving…
Pouneh Almasi is an associate in the Intellectual Property Practice Group in the firm’s San Francisco office.  
Areas of Practice
Pouneh’s practice focuses on intellectual property litigation with an emphasis on copyright and trademark issues.  She is also a member of the firm’s Blockchain Technology & Digital Currency Team.
During law school, Pouneh worked as a judicial extern to the Honorable Jacqueline Scott Corley at the Northern District of California in San Francisco…
Gabriel is an Associate on the Telecom team and the Co-Lead Associate on the Blockchain and Digital Assets team in the firm’s Washington, D.C. office. He is a Blockchain Law Professional as Certified by the Blockchain Council.
At Sheppard Mullin, Gabriel assists the Telecom team in all aspects of communications law and regulation including, satellites, spectrum, 5G implementation, media companies, and new technologies. He assists the Blockchain and Digital Assets team in legal issues relating to the use of blockchain technology, social media, internet, video games, online gambling,…

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