In a double blow to the cryptocurrency industry’s aspirations for mainstream banking integration, the Federal Reserve Board denied Wyoming-based Custodia Bank’s application for Federal Reserve System membership on January 27, 2023, while the Biden Administration simultaneously released a comprehensive roadmap aimed at mitigating cryptocurrency risks.
TL;DR
- The Federal Reserve denied Custodia Bank’s application for Fed membership, citing safety and soundness concerns
- The Biden White House published a “Roadmap to Mitigate Cryptocurrencies’ Risks” urging Congress to expand regulatory oversight
- Custodia Bank CEO Caitlin Long pledged to continue litigating the decision
- Bitcoin traded at $23,078, with the broader crypto market cap at $1.04 trillion
- Banking agencies issued joint guidance to separate risky digital assets from the traditional banking system
Federal Reserve Rejects Crypto Bank’s Bid
The Federal Reserve Board announced its decision to deny Custodia Bank, Inc.’s application for membership in the Federal Reserve System, dealing a significant setback to the crypto industry’s efforts to gain legitimacy within the traditional U.S. banking framework. The Cheyenne, Wyoming-based institution had been waiting for more than two years for a resolution on its application.
In its statement, the Fed said Custodia’s business model and focus on crypto presented “significant safety and soundness risks” for depositors. “The board has previously made clear that such crypto activities are highly likely to be inconsistent with safe and sound banking practices,” the statement added. The board also raised concerns about Custodia’s capacity to discourage money laundering and terrorism financing through cryptocurrency transactions.
Custodia Vows to Fight
Custodia Bank’s CEO Caitlin Long expressed being “surprised and disappointed” by the rejection and pledged to continue litigating the issue. Custodia had already sued the Federal Reserve Board and the Federal Reserve Bank of Kansas City in Wyoming federal court in 2022, accusing them of taking an unreasonably long time on the application.
“Custodia offered a safe, federally regulated, solvent alternative to the reckless speculators and grifters of crypto that penetrated the U.S. banking system, with disastrous results for some banks,” Long stated. She emphasized that Custodia had “actively sought federal regulation, going above and beyond all requirements that apply to traditional banks.”
Wyoming’s Crypto Banking Ambitions Stall
The rejection carries particular significance for Wyoming, which has positioned itself as a crypto-friendly state. In recent years, Wyoming passed numerous laws and regulations favorable to cryptocurrency and blockchain technology, including legislation allowing state-chartered crypto banks known as special purpose depository institutions, or SPDIs, colloquially called “speedies.”
Wyoming has chartered four such crypto banks, including Custodia. However, these institutions have shown little public activity while Custodia’s application remained pending, making the Fed’s decision a bellwether moment for the entire crypto banking experiment in the state.
White House Releases Crypto Risk Roadmap
On the same day, the Biden Administration published a statement titled “The Administration’s Roadmap to Mitigate Cryptocurrencies’ Risks,” authored by National Economic Council Director Brian Deese, Office of Science and Technology Policy Director Arati Prabhakar, Council of Economic Advisers Chair Cecilia Rouse, and National Security Advisor Jake Sullivan.
The roadmap explicitly referenced the turmoil of 2022, noting that a so-called “stablecoin” imploded in May — a clear reference to the Terra/Luna collapse — prompting “a wave of insolvencies,” followed by a “major cryptocurrency exchange” collapsing months later — referring to FTX. The Administration emphasized that “many everyday investors who trusted cryptocurrency companies — including young people and people of color — suffered serious losses.”
Congress Urged to Act
The statement called on Congress to expand regulators’ authority over the crypto sector. It highlighted that while the technologies powering cryptocurrencies might offer ways to make payments “faster, cheaper, and safer,” the industry posed clear risks including regulatory evasion, consumer deception, conflicts of interest, inadequate disclosures, outright fraud, and cybersecurity failures.
Notably, the Administration disclosed that North Korea’s Democratic People’s Republic had stolen over $1 billion through crypto-related cyberattacks to fund its missile program. Banking agencies also issued joint guidance earlier in January on the imperative of separating risky digital assets from the traditional banking system.
Why This Matters
The January 27, 2023 developments represent a coordinated regulatory crackdown on the crypto industry at the highest levels of the U.S. government. The simultaneous denial of Custodia’s banking application and the release of the White House roadmap signal that the federal government views crypto as incompatible with traditional banking without significant oversight. For the broader crypto market, which was experiencing a tentative recovery with Bitcoin trading at $23,078, these regulatory headwinds underscore the ongoing tension between innovation and institutional acceptance. As crypto companies navigate an increasingly hostile regulatory environment, the question of how digital assets integrate with the traditional financial system remains unresolved — and these events make clear that the answer will be determined on regulators’ terms, not the industry’s.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Cryptocurrency investments carry significant risk. Always conduct your own research before making investment decisions.
fed denying custodia while simultaneously printing money for failing traditional banks. you cant make this up
signature bank collapsed weeks later and got bailed out same month. the double standard is the entire point
signature got bailed out in march 2023, same regulators who denied custodia in january. if you cant see the pattern youre not looking
the Fed denied a fully compliant bank a master account while simultaneously creating emergency facilities for Signature after it failed. you literally cannot make this up
denying Custodia a master account while literally creating emergency facilities for Signature two months later. regulators werent protecting depositors they were protecting incumbents
master_acct_ the joint guidance to separate crypto from banking was the policy equivalent of a redlining map. they drew a line around crypto and said no services beyond this
the joint guidance to separate crypto from traditional banking is just regulatory apartheid. you either get full access or full exclusion, nothing in between
caitlin long fighting back is the right move. the fed reasoning was basically crypto is scary with no actual safety analysis
denying a fully compliant, well-capitalized bank while extending emergency facilities to reckless ones. the Fed was protecting incumbents not depositors
Caitlin Long literally warned regulators about fraud at Signature months before it happened and they ignored her. then denied her bank a master account.
she warned them about fraud at Signature and they punished her for it. the irony of denying a compliant bank while bailing out non-compliant ones
Caitlin Long literally handed regulators evidence of Signature Bank fraud and they denied Custodia a master account instead of investigating. then Signature collapsed 6 weeks later
regwatch_42 the signature timeline is damning. january denial, march bailout. caitlin long was right about everything and they still shut her out
Caitlin Long handed them proof of Signature fraud on a silver platter and they denied HER a master account. you cant write better fiction than this
truther_88 the Signature timeline is the smoking gun. denied Custodia in january, bailed out Signature in march. regulators werent protecting anyone, they were protecting each other
BTC at 23k and the fed was still terrified of crypto banks. tells you everything about who they actually work for
Caitlin Long gave them evidence of Signature fraud on a plate and they denied HER a master account. then bailed out Signature two months later. you cant make this up
audit_the_fed the Signature timeline is the most damning thing. January denial, March bailout. regulators protected the reckless bank and punished the careful one
master_account_ the Signature timeline is damning. January denial then March bailout. Caitlin Long did everything right and got crushed
master_account_ january denial then march bailout of signature is the timeline everyone should memorize. caitlin long did everything right and got punished for it
the Biden roadmap was theater. urging Congress to do something while your own agencies selectively pick winners and losers in banking access
the joint guidance separating crypto from traditional banking is regulatory segregation disguised as consumer protection. same playbook they used against credit unions in the 90s
Greta Lindholm calling it regulatory segregation is accurate. they used the same framework against credit unions in the 90s
Caitlin Long handed regulators evidence of Signature fraud and got denied a master account for her trouble. the Oversight hearing footage is still online and still infuriating
Sigrid N. the January denial to March bailout timeline is 60 days. they killed a compliant bank and rescued a fraudulent one inside two months. nobody faced consequences