Custodia Bank CEO Caitlin Long slams US Federal Reserve for maintaining anti-crypto policy

Caitlin Long, founder and CEO of Custodia Bank, has criticized the US Federal Reserve for quietly maintaining a key anti-crypto policy that favors big-bank-issued stablecoins, despite relaxing crypto partnership rules for banks.

In an April 27 thread on X, Long explained that while the Fed recently rescinded four prior crypto guidelines, it left intact a Jan. 27, 2023, statement issued in coordination with the Biden administration. The guidance, according to Long, blocks banks from engaging directly in crypto assets and prohibits them from issuing stablecoins on permissionless blockchains.

“THE FED HAS MAINTAINED A REGULATORY PREFERENCE FOR PERMISSIONED STABLECOINS (ie, big-bank versions), and it's STATED that banks can's issue stablecoins on PERMISSIONLESS blockchains,” Long stated.

This move, she warned, gives traditional financial institutions a “head start” in launching private stablecoins while the broader market waits for stablecoin legislation to pass through Congress. Long urges Congress to pass stablecoin bill.

Once a federal stablecoin bill becomes law, it could override the Fed’s stance. “Congress should hurry up,” she urged.

Beyond stablecoins, Long pointed out how the Fed’s policy hampers banks from participating in crypto markets as principals, preventing them from market-making in assets like Bitcoin (BTC), Ether (ETH) or Solana (SOL).

She also noted operational challenges for banks looking to offer crypto custody services, particularly around covering gas fees for onchain transactions — a standard practice for crypto custodians but restricted under current Fed rules.

Summing up her concerns, Long argued that the Fed’s decision keeps “sand in the wheels” of banks entering crypto custody, while simultaneously advancing permissioned stablecoins backed by major financial institutions.

“The Fed definitely won on PR spin--its press release listed a long list of guidance it rescinded but omitted ANY mention of the guidance it kept. That duped a lot of smart people, understandably,” she wrote.

Senator Cynthia Lummis, a vocal supporter of digital assets, also condemned the Fed’s move as mere “lip service,” signaling potential legislative pushback in the near future.

Lummis mentioned the Fed’s policy statement in Section 9(13), which hasn't been withdrawn, stating that Bitcoin and digital assets are considered “unsafe and unsound.”

However, other crypto executives praised the Fed’s announcement as a positive development for the industry. Strategy's Michael Saylor said in an April 25 X post that the Fed’s move means that “banks are now free to begin supporting Bitcoin.”