Key Takeaways
- Long argues the policy prevents banks from holding crypto assets as principal, blocks banks from issuing stablecoins on permissionless blockchains, and favors permissioned blockchains
- Long criticized the Fed’s announcement as a public relations stunt, accusing it of deliberately omitting the fact that it kept the most restrictive policy in place.
Caitlin Long, CEO of Custodia Bank, accused the Federal Reserve of misleading the public by pretending to ease crypto regulations while quietly preserving the most critical restrictions.
In a detailed thread post on X, Long said the Fed made headlines by announcing it had scrapped four pieces of anti-crypto guidance but kept one major policy intact — the very one that continues to block banks from engaging with digital assets.
She explained that the surviving guidance, issued alongside the Biden administration’s anti-crypto statement on January 27, 2023, still prohibits banks from touching cryptoassets in any substantial way.
According to Long, the policy does three crucial things: it prevents banks from holding cryptoassets as principal, blocks banks from issuing stablecoins on permissionless blockchains, and favors permissioned blockchains — centralized networks typically controlled by large financial institutions.
“The Fed has maintained a regulatory preference for permissioned stablecoins,” Long warned, arguing this gives Wall Street giants a major head start before Congress passes a federal stablecoin law.
Long said the Fed’s refusal to allow direct bank involvement in crypto markets has wider consequences than many realize. She noted that Wall Street institutions are effectively barred from market-making in top tokens like Bitcoin, Ethereum, and Solana. At the same time, banks looking to offer crypto custody services face major hurdles.
Further in her thread, Long pointed out an operational challenge which involved crypto custodians often covering unexpected gas fee spikes to ensure transactions succeed. Under the Fed’s rules, a custodian bank is forbidden from paying these additional fees, meaning transactions could fail and services become unreliable.
Custody becomes even more complicated, Long explained, because custodians split large holdings into smaller pieces to manage risk. Each split triggers additional on-chain transactions and more gas fees, compounding the problem. “The Fed threw sand into the gears” for banks hoping to enter crypto custody, she said.
Long criticized the Fed’s announcement as a public relations stunt, accusing it of deliberately omitting the fact that it kept the most restrictive policy in place. “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.
She further said the White House praised the Fed’s move, either unaware or pretending not to notice that the harshest restrictions remained. Long suggested this raises deeper questions about the coordination between the Fed and the White House, especially as most public focus remains on disagreements over interest rates rather than crypto regulation.
Long urged Congress to move quickly on passing a stablecoin bill that could override the Fed’s current stance. “Congress should hurry up,” she said.
The latest development comes amid US Senator Cynthia Lummis also expressing strong opposition to the Fed’s move. She dubbed the crypto policy shift as “lip service” and called for better reforms
