Caitlin Long sees “coordinated effort” among regulators to reject detention

Factions in the Biden administration and the U.S. Federal Reserve were responsible for cutting off crypto-oriented Custodia Bank’s efforts to get a central bank account, 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 the anti-crypto faction believes that crypto is going to disappear, or is not going to find its way back into the traditional US banking system, they are [regulators] going to play mule for years,” Long said on CoinDesk TV’s “First Mover” on Tuesday.

Long, who has championed crypto-friendly legislation in her home state of Wyoming, said in a recent blog post that she was trying to alert federal regulators about a crypto company she claimed was running a scam. Although she did not name the company in her post, she said regulators also ignored her warning about a potential for a “bank run.”

“”It appears to have gone into a black hole,” she told CoinDesk TV of her warning.

“But I have tried, and Custodia staff across the board have tried, very hard over the last two and a half years to educate banking regulators about the risks and the upside in these [crypto-related] technologies.”

Custodia Bank, a three-year-old special-purpose depository 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 rejected Custodia’s bid for membership in the Federal Reserve system in January, citing concerns about the bank’s “safety and soundness”. Shortly thereafter, the Kansas City Fed rejected Custodia’s “main account” application. Wyoming is in the Kansas City Fed’s jurisdiction.

Long said 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 argued that the rejection of Custodia’s application also demonstrates a “coordinated effort among agencies.” According to her, it highlights the key question of whether crypto “should be within the regulatory perimeters, should there be regulated versions of it or should it be done outside the regulated financial system.”

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

Regulators’ actions against the industry could push crypto companies that need funding to banks outside the US, Long said, and “that’s where the mule is going to continue to be played.”

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

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