US Regulators Ease Up: Crypto Drops Off the ‘Vulnerability’ List — Now What?

Big policy U‑turn: crypto is no longer a “vulnerability”

In plain speak: the U.S. Financial Stability Oversight Council (FSOC) quietly demoted digital assets in its 2025 annual report. Where crypto used to sit on a short list of things that might topple the financial system, it now lives in a calmer category called “significant market developments to monitor.” Translation — regulators moved from panic mode to observant mode.

This isn’t just wordplay. Earlier reports warned that crypto could spark systemic trouble and pushed for fresh rules on spot markets and stablecoins. The new report drops that broad systemic-warning tone and instead presents crypto as a growing market with more institutional players — think spot Bitcoin and Ethereum ETFs, tokenized assets, and beefed-up stablecoin rules.

Behind the scenes there were three big shifts that made the change possible: the White House reversed earlier executive guidance and leaned toward supporting responsible growth of digital assets; Congress passed a stablecoin law (requiring full backing and assigning oversight to mainstream bank regulators); and banking agencies loosened some guardrails so banks and regulated trust providers can re-enter plumbing activities without immediately triggering crisis-level alarms.

Why it matters — the upside, the caveats, and the plot twists

Upside: dropping the “vulnerability” label removes a lot of the macroprudential stigma that made big financial institutions treat crypto like radioactive waste. With clearer rules for stablecoins and safer legal space for custodians and banks, things like ETFs, custody services, tokenized collateral and stablecoin rails have a cleaner path to scale. That’s how institutional exposure to Bitcoin and other digital assets could grow without regulators slamming the brakes for being “systemically risky.”

Not a free pass: regulators didn’t wave a magic wand and say “party on.” Anti-money‑laundering, sanctions enforcement, and fraud prevention are still priorities. The FSOC explicitly notes that dollar stablecoins can be misused, and international watchdogs keep flagging gaps in rules and enforcement. Global bodies have warned that the market has ballooned and that inconsistent rules across countries could create real risks.

Political risk remains real. The regulatory tide can ebb as fast as it flowed in. The U.S. framework now looks permissive but fragile — it will hold only if ETF flows remain orderly, stablecoin issuers actually keep 100% backing, custody systems don’t blow up, and regulators don’t suddenly change their minds in an election year or after a big market shock. If something breaks, the language could flip back from “development” to “vulnerability” faster than you can say re‑run the emergency playbook.

Bottom line: the U.S. has shifted from treating crypto as a looming contagion to treating it like a new-ish market to supervise. That removes a lot of chill for banks and institutions, but it doesn’t eliminate regulatory risk — it just moves the fight from “existential threat” theater to the more boring (and long game) world of prudential rules, AML, and oversight.

Enjoy the calm while it lasts — the next stress test will be telling.