Caitlin Long Sees 'Coordinated Effort' Among Regulators for Custodia Rejection

Factions in the Biden administration and the U.S. Federal Reserve were responsible for scuttling crypto-oriented Custodia Bank’s efforts to obtain a master account from the central bank, CEO Caitlin Long claimed Tuesday.

While not naming them, she told CoinDesk TV's "First Mover" that crypto is here to stay and regulators will have to deal with it.

“If that anti-crypto faction thinks that crypto is going to go away, or is not going to find its way back into the traditional U.S. banking system, they’re [regulators] going to be playing whack-a-mole for years down the road,” Long said on CoinDesk TV’s “First Mover” on Tuesday.

Long, who has been championing crypto-friendly legislation in her home state of Wyoming, said in a recent blog post she tried to warn federal regulators about a crypto company she claimed was engaging in fraud. While she did not name the company in her post, she said regulators also ignored her warning of a potential for a "bank run."

"It seems to have gone into a black hole," she told CoinDesk TV about her warning.

"But I have tried, and indeed Custodia staff across the board has tried, very hard for the last two and a half years to educate bank regulators on the risks and the upside in these [crypto-related] technologies."

Custodia Bank, a three-year-old special purpose depository institution in Wyoming, has been at odds with regulators as it tries to push its way into the U.S. banking system. After a long wait, the central bank denied Custodia’s bid for Federal Reserve system membership in January, citing concerns about the “safety and soundness” of the bank. Shortly after, the Kansas City Fed denied Custodia’s “master account” application. Wyoming is in the Kansas City Fed's jurisdiction.

Long said that it “raises interesting questions about the independence of both the Federal Reserve from the White House” and the “Kansas City Reserve Bank from the Federal Reserve Board.”

She claimed the denial of Custodia's application also demonstrates a “coordinated effort among agencies.” According to her, it highlights the key question of whether crypto “should be inside of the regulatory perimeters, should there be regulated versions of it or should it be done outside of the regulated financial system.”

The Cheyenne firm renewed its push for a master account on Friday.

Custodia may be “just the tip of the spear” when it comes to regulatory action. The U.S. Securities and Exchange Commission (SEC) took extensive action against other crypto-native firms including Kraken and Paxos not long after the Custodia application denial, she said.

Regulators’ actions against the industry could push crypto companies needing funding to banks outside the U.S., Long said, and “that's where the whack-a-mole is going to continue to be played.”

“Light needs to be shown on all this [and] why politicians got involved with a company that wasn't even operating yet,” Long said. “Why was Custodia Bank chosen as the sacrificial lamb, the so-called shooting of the stallion to scatter the herd?”

CoinDesk reached out for comment from regulators including the SEC and Fed. All declined to comment.

Read more: Custodia Bank Renews Push for Fed 'Master Account' After Rejection