Fed Policy Gives Big Banks a Crypto Edge, Warns CEO of Custodia Bank
Caitlin Long, the founder and CEO of Custodia Bank, recently shared sharp observations about the Federal Reserve’s stance on cryptocurrency regulation.
In a detailed thread, Long explains how the Fed’s selective enforcement of anti-crypto policies is not only delaying innovation but also giving a major head start to big banks launching permissioned stablecoins.
A Lone Anti-Crypto Rule Left Standing
On January 27, 2023, the Biden administration coordinated with the Federal Reserve to release several statements targeting crypto. Since then, four of the five issued regulations have been rescinded—except one. The surviving guidance, Long notes, reveals the Fed’s consistent anti-crypto stance: it blocks banks from:
- Touching cryptoassets as principal, even in small amounts (such as covering gas fees),
- Issuing stablecoins on permissionless blockchains.
Additionally, the Fed’s policy explicitly favors permissioned blockchains over permissionless ones—a preference not shared by other federal banking agencies like the OCC and FDIC, who have already rescinded their similar positions.
In effect, the Fed maintains a regulatory bias: it supports permissioned (i.e., controlled by a select group, typically large banks) stablecoins while hampering broader decentralized innovation.
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The Race Before the Rules Change
Long points out that a stablecoin bill currently under consideration would overturn the Fed’s favoritism for permissioned blockchains. Until then, however, big banks’ private stablecoins are given a critical early-mover advantage, positioning them strongly before the stablecoin market truly opens under new legislation.
She warns: “Congress should hurry up!”
Custody Complications: Sand in the Wheels
Beyond stablecoins, the Fed’s retained policies significantly impair banks’ ability to participate in crypto custody services. Long explains the practical issues:
- Transaction Fees: Custodians typically pre-estimate transaction (gas) fees, but fluctuations in on-chain fees can cause transactions to fail. Since banks cannot hold cryptoassets even for fee payment, their operations are severely limited.
- Risk Management Practices: Custodians often split large holdings into smaller transactions to reduce risk. Paying multiple gas fees for these operations would be practically unworkable for banks barred from managing crypto directly.
Thus, by blocking direct crypto exposure, the Fed is quietly discouraging banks from entering the digital asset custody market at all.
Summary: Structural Advantage for Big Banks
In Long’s view, the Fed’s current position serves two purposes:
- Blocks banks from becoming custodians of major cryptoassets like BTC, ETH, and SOL.
- Gives big banks a structural advantage to launch permissioned stablecoins ahead of competitors, while the broader market waits for Congressional action.
The result? The Fed isn’t just slowing crypto adoption—it’s actively shaping the playing field to favor traditional banking giants.
Kosta has reported on cryptocurrency markets and blockchain infrastructure since 2020, bringing over six years of hands-on experience in the crypto industry built through daily tracking of markets, trends, and emerging blockchain developments. Specializing in Bitcoin on-chain analysis, institutional ETF flows, and digital asset price action, his work at Coindoo has been cited by other news agencies and consistently covers market developments with a focus on data-driven reporting across Bitcoin, Ethereum, Solana, and XRP. Over the years, Kosta has contributed to multiple crypto media outlets in different regions, authoring over 6,000 articles across the sector. His reporting spans cryptocurrency markets and the broader fintech industry, tracking not only price action but also the technological and regulatory forces shaping the ecosystem. To support his analysis, Kosta actively leverages on-chain data and metrics from leading platforms such as Santiment, Glassnode, and CryptoQuant, enabling deeper, evidence-based market insights. He believes in the power of transparency and the data that underpins the blockchain ecosystem. His academic background in Marketing Management from Denmark further complements his analytical approach, adding a strong understanding of communication strategy and content positioning to his work.
