Crypto mogul escalates anti-Fed crusade

With help from Derek Robertson

Crypto pioneers see themselves as architects of a new futurebut a major bank’s move this week has them worried that Washington could effectively hand that future to established players.

On Tuesday, the nation’s oldest bank, BNY Mellon, announced that it would become the first major U.S. bank to offer clients custody services for digital assets alongside its analog securities.

In a sense, this is a major milestone for institutional crypto adoption. But one prominent Bitcoin evangelist isn’t celebrating.

For Caitlin Long, the founder of Wyoming-based crypto bank Custodia, “It was a surprise,” and not a good one, she told me.

Long’s bank applied for a main account that would give it access to the Federal Reserve back in 2020. After facing delays, Custodia (which prefers the label “dollar-and-digital-asset bank”) sued Fed regulators in June to compel the bank. issue. Yesterday, it filed a new filing in response to the BNY Mellon news, arguing that it undermines the Fed’s rationale for delaying Custodia’s access to an account — that integrating crypto-native upstarts into the central banking system poses major risks.

As crypto grows and matures, crypto upstarts and the industry’s reigning heavyweights are competing for the spoils of the transition to digital assets. (Just as central bank digital currencies, stablecoins linked to sovereign currencies and native cryptocurrencies compete to dominate the future of digital money).

The protracted battle between Custodia and the bigwigs of the US banking system could affect the development of the sector by tipping the playing field one way or the other. It could also affect the ways newly regulated industries approach Washington, as some crypto firms test the claim that confrontation will take them further than cozying up.

The Fed has said it needs time to scrutinize applications from crypto-native banks like Custodia because integrating them into the central banking system poses a difficult-to-understand risk.

In August, it issued guidelines which applies greater scrutiny to crypto upstarts seeking access to the central banking system than to established, federally regulated banks branching into crypto, on the basis that the latter’s risk controls have already passed regulatory scrutiny.

The guidelines require banks that already participate in the central banking system to notify the Fed before carrying out crypto-related activities and be ready for feedback. A spokesman for BNY Mellon did not respond to questions about any contacts it had with the Fed or other federal regulators regarding the new crypto offering.

In yesterday’s filing, Long’s bank argues that if a major player like Mellon — one of 30 banks in the world deemed “systemically important” by global regulators — can offer crypto services without threatening the stability of the banking system, then a smaller upstart like Custodia can also.

“The Reserve Bank makes decisions that discriminate against new entrants in favor of incumbents,” Long said in our interview. A spokeswoman for the Federal Reserve Board of Governors, Laura Benedict, declined to comment.

Regardless of whether the Feds’ overseers really are giving Long as raw a deal as she claims, the scorched-earth battle she’s waging probably isn’t doing anything to endear her to them. In true crypto fashion, Custodia’s original complaint not only calls for action on the main account application, but also challenges the constitutionality of the Federal Reserve system itself. It argues, among other things, that the structure violates due process guarantees by giving financially self-interested entities regulatory power over their rivals.

That’s not how traditional banks do business, to say the least.

“Banks are really afraid to sue the regulators, because they’re also being watched and investigated by the regulators,” said Meg Tahyar, who heads the financial institutions group at global law firm Davis Polk. “There is a concern that the regulators will retaliate.”

Crypto firms aren’t exactly rejecting Washington — in fact, they are used lavishly on lobbying – but some have supplemented these efforts with a confrontational approach to the powers that be that separate crypto upstarts from the incumbents they are trying to disrupt. Custodia isn’t even the only crypto firm to have persuaded a federal regulator in court this week.

In a brief filed Tuesday as part of its case to compel the SEC to approve a Bitcoin ETF, digital asset manager Grayscale claimed the agency’s rejection of its product as “arbitrary, capricious and discriminatory.”

While the original ethos of crypto was about avoiding government oversight at all costs, the new look forces the government to deal with you, whether it wants to or not.

One of America’s highest profile crypto boosters in the office is Miami Mayor Francis Suarez, who has been pushing establish the city as a crypto-friendly startup hub a la Austin, Texas.

This morning at Restart the conference in Miami, hosted by the right-wing think tank Lincoln Network, Suarez made the case for taking his sunny, pro-Bitcoin, free-market philosophy across the country — and hinted very concretely at the presidential ambitions he is. previously referred to only in the abstract.

“If 2024 is about the next generation, and 2024 is about talking to large minority communities — for example, Hispanics tend to be trending Republican, and I happen to be Republican — if 2024 is about this turning point of a transition to a new economy… if the mood changes, it might be an atmosphere I can thrive in, because I seem to be the only person who fits that criteria,” Suarez said.

Suarez boosted his national profile during the Covid-19 pandemic, as did many other mayors, although a presidential run in 2024 would still be a wildly ambitious leap for the 45-year-old politician. But if his reading of the pulse of the American electorate is correct — that they are thirsting for what the Reboot conference itself is pitching, a technology-driven rejuvenation of ponderous American bureaucracies — he is better positioned than most to capitalize on it. — Derek Robertson

Quantum computing is an issue of utmost geopolitical importance — think of NIST great cryptographic competition to “quantum-secure” America’s information systems (that is, make them resistant to theoretically hyper-advanced quantum computers that can break into any system).

But it is a big deal in Europe too, especially in the area of ​​industrial policy. The European Union is pushing to achieve a kind of quantum sovereignty, where it doesn’t have to rely on imported parts — or science — to build its own quantum computers.

On a meeting in the European Parliament yesterdayMargerethe Vestager, the EU Commissioner for Competition, highlighted Europe’s recent achievements in the field (including two EU-based quantum physicists winning The Nobel Prize in Physics last week), served as booster-in-chief for Europe’s quantum ambitions.

“Hype gives commitment, it gives passion, which gives the drive to keep focusing and getting things done … I think Europeans should say, ‘wow, we’ve got something going for ourselves,'” Vestager said.

She also noted that Europe’s “people’s market”, as she described it, is currently oriented towards attracting academic talent rather than business talent, setting the stage for the EU’s recent Chips Act as a step in the right direction towards attracting more capital – the kind of competitive, pro-industrial policy arguments that might sound somewhat familiar to American readers. — Derek Robertson

Keep in touch with the whole team: Ben Schreckinger ([email protected]); Derek Robertson ([email protected]); Steve Heuser ([email protected]); and Benton Ives ([email protected]). follow us @DigitalFuture on Twitter.

Ben Schreckinger covers technology, finance and politics for POLITICO; he is a cryptocurrency investor.

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