tl;dr
Custodia Bank CEO Caitlin Long criticized the US Federal Reserve for maintaining anti-crypto policies that favor large banks while appearing to ease regulations. Although the Fed rescinded several restrictive guidelines, it kept a key January 2023 rule preventing banks from directly engaging with cr...
Custodia Bank CEO Caitlin Long has sharply criticized the US Federal Reserve for maintaining anti-crypto policies that disproportionately favor large banks, despite giving the impression of regulatory easing. Although the Fed recently rescinded several restrictive guidelines, it kept a critical January 2023 rule intact. This rule prevents banks from directly engaging with cryptocurrencies, including holding digital assets or issuing stablecoins on public blockchains like Ethereum.
Long argues that this selective rollback creates an uneven playing field. Major banks receive a de facto advantage by issuing private stablecoins on permissioned blockchains—networks controlled mainly by established financial institutions—while smaller banks and innovators face barriers that stifle competition and technological progress.
In a detailed social media post, Long highlighted that the Fed’s announcement listed all repealed policies but conspicuously omitted the crucial rule that restricts banks from holding cryptocurrencies, even for covering blockchain transaction fees. This exclusion hampers banks’ ability to provide efficient crypto custody services, as they cannot pay fluctuating gas fees out of pocket, a technical necessity for on-chain processing.
The broader concern raised by Long is that the Federal Reserve appears to promote centralized, private blockchain solutions at the expense of decentralized public networks, entrenching the dominance of big banks in emerging stablecoin markets. This approach could delay wider blockchain adoption until comprehensive federal stablecoin legislation is enacted.
Senator Cynthia Lummis joined the critique, denouncing the Fed's recent regulatory rollback as superficial “lip service.” She condemned ongoing regulatory resistance towards banks engaging with Bitcoin and other digital assets, labeling such assets as “unsafe and unsound.” Lummis pledged continued oversight of Fed Chair Jerome Powell, emphasizing that lingering influences from past crypto crackdowns persist within policy-making circles.
Despite earlier efforts under President Donald Trump's administration to foster a more crypto-friendly regulatory environment, Long and Lummis maintain that federal agencies remain hesitant to fully embrace blockchain innovation, which may impede the United States’ competitiveness in the rapidly evolving crypto landscape.