Wyoming still wants to attract new crypto business

Caitlin Long first got into crypto about a decade ago, but she really saw the potential after she tried to donate to her alma mater, the University of Wyoming, with bitcoin.

“They said, ‘What?’ And I said, ‘OK, let me tell you what it is and let’s see if we can figure out how to make this work,'” Long said.

Now, Long is CEO of Custodia Bank, headquartered in Cheyenne. It is seeking membership in the Federal Reserve to handle digital assets and has a charter from the state of Wyoming.

In recent years, Long has helped make Wyoming one of the most crypto-friendly states in the country. She calls the technology an “incredible opportunity,” but said she understands why some people have reservations about digital assets, especially in light of the recent high-profile collapses of several crypto companies such as FTX.

“It’s a constant drumbeat that I’ve had for five years publicly trying to warn people that these businesses are going to fail,” Long said. “It’s more than just highly leveraged business models. There were outright criminals in this business.”

However, Long said crypto has helped her state diversify its economy beyond the energy industry. Wyoming lawmakers have passed at least 20 laws trying to attract new crypto businesses. This year they authorized the state to issue its own cryptocurrency in the form of a stablecoin.

At the federal level, Wyoming’s junior senator, Cynthia Lummis, has been dubbed the “crypto queen” because she is so bullish on the technology. She recently introduced a bill that would allow the federal government to regulate crypto like other financial assets — and points to Wyoming as an example of responsible policy.

“I think that Wyoming has a piece of legislation that — if it had been used by FTX and other companies — would have prevented some of the fraud that we saw,” Lummis said at a recent press conference.

But some question whether lawmakers should be focusing on crypto at all. Christopher Odinet, a law professor at the University of Iowa, said most digital assets are not tied to anything tangible, such as commercial goods or supply chains.

“I think you have to ask, what exactly is this?” he said.

One question he has is whether crypto should be part of banking. Wyoming is the first state to allow banks to house digital currencies alongside government-backed fiat currencies under one roof. This is called a Special Purpose Depository Institution, or SPDI, and more importantly, these crypto assets are backed by cash reserves.

However, Odinet said it still might not be a good idea for the Federal Reserve to get involved in SPDI.

“If the 2008 financial crisis taught us anything, it’s that keeping banking simple really is a pillar of avoiding financial damage and the contagion that can follow,” he said.

Earlier this year, the Federal Reserve Board rejected the application of Long’s Custodia bank, arguing that the firm’s focus on crypto posed too many security risks. Custodia has filed a lawsuit to challenge how the board handled that application.

Meanwhile, Wyoming continues to invest in the future of crypto in the state. The University of Wyoming has created a center for blockchain and digital innovation. The center hosts an annual event, called the Wyoming Blockchain Stampede, that seeks to encourage local young business people to get involved in digital assets.