Crypto Meets the Fed’s Core Payments System

The financial system in the United States can be separated into two periods.

One period, the historical one, existed up until Tuesday (March 3). During this period, access to the Federal Reserve’s core payment systems was available only to banks and credit unions.

On Wednesday (March 4), a new period started with the announcement that Kraken Financial, the Wyoming-chartered bank of the Kraken cryptocurrency exchange, was granted a Federal Reserve master account by the Federal Reserve Bank of Kansas City.

A crypto firm is now part of the same settlement architecture used by traditional banks to clear payments across the U.S. economy for the first time in history. That means Kraken can now move dollars through systems such as Fedwire without relying on intermediary banks. The move will enable faster and more efficient fiat movement for its institutional clients, while reducing complexity, cost and operational dependencies.

“This milestone marks the convergence of crypto infrastructure and sovereign financial rails,” Payward and Kraken co-CEO Arjun Sethi said in a Wednesday statement. “With a Federal Reserve master account, we can operate not as a peripheral participant in the U.S. banking system, but as a directly connected financial institution.”

“This is what it looks like when crypto infrastructure matures into core financial infrastructure,” he added.

The milestone may appear technical, but its implications are not. Direct access to the Fed’s payment systems effectively inserts a crypto institution into the core machinery that clears and settles dollars across the U.S. economy.

Whether this marks an isolated regulatory accommodation or part of a broader financial transition remains an open question. But for corporate finance teams and institutional investors, the news represents the latest in a series of developments that have steadily moved digital assets closer to the center of regulated finance.

See also: Bank Charters Are Reshaping Who Can Compete for Consumer Deposits

The Long Arc of Crypto’s Institutionalization

Historically, most exchanges and crypto companies relied on partner banks to move dollars. That dependence proved fragile during industry crises. When crypto-friendly institutions, such as Silvergate Bank, collapsed or withdrew from the sector, the plumbing connecting crypto markets to the banking system seized up.

Kraken’s Fed access is best understood not as a singular breakthrough but as part of a series of milestones that have steadily pulled crypto closer to the center of financial markets.

One of the most consequential came in 2024 when the U.S. Securities and Exchange Commission approved spot bitcoin exchange-traded funds. By allowing asset managers to offer direct exposure to bitcoin through regulated ETFs, the decision effectively normalized crypto as an investable asset class for institutional portfolios. Pension funds, RIAs and hedge funds suddenly had a familiar wrapper through which to allocate capital.

Another structural shift occurred as major banks began experimenting with digital asset services. Institutions such as Citi, BNY Mellon and JPMorgan Chase have announced or introduced custody platforms and blockchain settlement systems, integrating crypto capabilities into the infrastructure that already supports trillions of dollars in traditional assets.

Meanwhile, regulated stablecoins have begun to blur the line between blockchain networks and conventional payment systems. New U.S. regulatory frameworks have opened the door for banks and licensed issuers to create these digital dollars under clearer supervision. Over half a dozen digital asset firms, for example, have won conditional approvals from the Office of the Comptroller of the Currency to operate stablecoin products and services under direct federal oversight.

Kraken’s own connection to the Federal Reserve system suggests a financial landscape in which blockchain networks, stablecoins and traditional banking infrastructure operate not as separate ecosystems but as interlocking components of a single system.

“Over time, this architecture could enable atomic settlement between fiat and crypto, institutional-grade cash management integrated with digital asset custody, and programmable financial products built within a fully regulated framework,” Kraken’s Sethi said in the Wednesday statement.

Read also: New SEC Guidance Pushes Stablecoins Closer to Cash Status

The Risks Beneath the Transition

Regulators have historically resisted granting such access to crypto firms, citing concerns ranging from financial stability to compliance and operational risk. Federal Reserve infrastructure forms a central component of financial stability. Extending that access to crypto-native firms requires strict controls around liquidity management, compliance and anti-money laundering oversight, among other more systemic guardrails.

The PYMNTS Intelligence and Citi report “Chain Reaction: Regulatory Clarity as the Catalyst for Blockchain Adoption” found that blockchain’s next leap will be shaped by regulation. While evolving guidance is starting to create the foundations for safe, scalable blockchain adoption, “implementation challenges … continue to complicate progress.”

Meanwhile, a paper published last month by economists Michael Junho Lee and Donny Tou at the Federal Reserve Bank of New York found that stablecoins do more than compete with bank deposits. They alter the liquidity demands placed on the banks that serve them. In doing so, they encourage a more reserve-heavy and potentially less loan-intensive banking model.

Crypto markets can move dramatically in hours. If customers rush to convert crypto into dollars, a crypto bank connected to Fed rails could transmit stress rapidly into the banking system. Kraken’s new Fed access may ultimately strengthen crypto’s legitimacy, but it is also likely to test how safely the financial system can absorb an industry built on 24-hour trading, rapid liquidity shifts and still-evolving regulation.

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