On December 17, the Federal Reserve suddenly revoked the cryptocurrency restriction policy for 2023, allowing regulated banks to participate in cryptocurrency activities. This marks a 180-degree turn in regulatory attitude, meaning traditional financial institutions can openly enter the cryptocurrency space, paving the way for institutional adoption of BTC and ETH. The market generally interprets this as a significant positive development.

However, the reality may not be as rosy. Why did the Federal Reserve impose strict restrictions on banks' participation in cryptocurrency in 2023? Because crypto-friendly banks like Silvergate and Signature faced successive failures, and SVB also encountered issues due to its exposure to cryptocurrency. Now, with the market sluggish, the sudden easing of regulations raises the question: is it a genuine endorsement of cryptocurrency or an attempt to trap banks, letting them take over at the peak of a bull market?

More importantly, the participation of banks in cryptocurrency does not mean they will blindly buy coins. The entry of institutions will inevitably come with stricter risk control and arbitrage strategies. Retail investors might mistakenly believe that Wall Street will lift them up, but that is a naive expectation. These seasoned players enter the market to make profits, not for ideology. They will leverage their financial advantages to market make, trade on swings, and even short-sell to harvest retail investors.

Another point that cannot be overlooked is that banks' involvement in cryptocurrency will undoubtedly bring more regulatory scrutiny. Anti-money laundering, KYC, and tax reporting will all become stricter. The once gray area of the cryptocurrency space will be gradually cleaned up, and the ideals of anonymity and decentralization will be further diluted. This is undoubtedly a nightmare for those who view cryptocurrency as a free haven.

So, is the Federal Reserve's lifting of restrictions a positive or negative signal? In the short term, it seems positive because new capital will flow in. However, in the long term, it could signify the end of the cryptocurrency spirit. When the cryptocurrency space becomes a playground for Wall Street, what will be left for retail investors?