Custodia Bank CEO Caitlin Long Criticizes Fed's Crypto Policy Favoritism

Caitlin Long, the founder and CEO of Custodia Bank, has expressed strong disapproval of the US Federal Reserve's policy that she believes favors stablecoins issued by large banks. Despite the Fed's recent easing of certain crypto guidelines for banks, Long highlights that a crucial anti-crypto policy remains intact. This policy, issued in January 2023 in collaboration with the Biden administration, restricts banks from directly engaging with crypto assets and from issuing stablecoins on permissionless blockchains. Long argues that this regulatory preference for permissioned stablecoins gives traditional financial institutions an unfair advantage in launching private stablecoins, while the broader market awaits stablecoin legislation from Congress.

Long's critique goes beyond stablecoins. She points out how the Fed's policy impedes banks from participating in crypto markets as principals, preventing them from market-making in assets like Bitcoin, Ether, or Solana. Additionally, she notes operational challenges for banks aiming to offer crypto custody services, particularly around covering gas fees for on-chain transactions—a standard practice for crypto custodians but restricted under current Fed rules. Long contends that the Fed's decision effectively hinders banks' entry into crypto custody while promoting permissioned stablecoins backed by major financial institutions.

Long urges Congress to accelerate the passage of a federal stablecoin bill, which could override the Fed’s stance. She also criticizes the Fed's public relations strategy, noting that the Fed's press release listed the guidance it rescinded but omitted any mention of the guidance it kept, potentially misleading many observers. Senator Cynthia Lummis, a vocal advocate for digital assets, also condemned the Fed’s move as mere “lip service,” suggesting potential legislative pushback in the near future. Lummis referred to the Fed’s policy statement in Section 9(13), which hasn’t been withdrawn, stating that Bitcoin and digital assets are considered “unsafe and unsound.” Despite these criticisms, some crypto executives praised the Fed’s announcement as a positive development for the industry.