Caitlin Long, CEO of Custodia Bank, criticises the Federal Reserve for retaining a key restriction that favours large banks regarding cryptocurrency. The Fed blocks banks from trading crypto and issuing stablecoins on public blockchains. Long’s assertion is that this gives big banks an unfair advantage while reducing opportunities for broader cryptocurrency services until legislative changes occur.
The Federal Reserve is facing sharp criticism from Caitlin Long, CEO of Custodia Bank, regarding its crypto regulations. Long points out that while the Fed has revoked several anti-crypto guidelines, it has kept in place a crucial restriction that favours major banks over smaller entities in the crypto space. This issue is seen as particularly problematic in how it shapes banks’ involvement in cryptocurrency.
One of the key restrictions, instated during the Biden administration in January 2023, prevents banks from directly engaging in crypto activities—meaning they can’t hold or transact in digital assets, even in small measures. This limitation effectively hinders any minor engagement with cryptocurrencies, particularly for transaction costs, or gas fees, as they’re often called in the crypto world.
Furthermore, Long emphasizes that banks are barred from issuing stablecoins on public blockchains, like Ethereum, opting instead to favour private, permissioned models. This choice stands in stark contrast to the positions taken by other regulatory bodies, such as the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), which have shown support for more open blockchain technologies.
By retaining this guidance, the Federal Reserve is seen to be empowering large banks to create their own stablecoins, gaining a significant advantage in a marketplace that could soon become more competitive with prospective federal legislation. Should the stablecoin bill be enacted, the pre-existing focus on permissioned blockchains by the Fed may be unsustainable, but this wouldn’t happen soon enough for the smaller players.
