Custodia Bank CEO Slams U.S. Government’s Crypto Debanking Stance Under Trump

At ETHDenver, a hub for crypto enthusiasts and blockchain innovators, Custodia Bank CEO Caitlin Long didn’t hold back her frustration. She lambasted the U.S. government for its lack of action on crypto debanking since Donald Trump’s return to the White House, highlighting the persistent regulatory quagmire that continues to stifle the industry.

• Caitlin Long criticizes lack of crypto debanking action under Trump
• Calls for new FDIC chair to drive change
• SEC shifts approach, revokes SAB 121
• Urges for stablecoin regulations to protect consumers

Long’s remarks cut through the optimism often found at such conferences. “It is still presumed unsafe and unsound for a bank to touch a digital asset even in a de minimis amount,” she stated, underscoring the absurdity of the current banking regulations. Despite the anticipation of policy shifts following Trump’s re-election, no changes have been made to federal banking regulations concerning digital assets. This inertia, according to Long, is why “the banking system is so backwards in this country.”

Long, a vocal advocate for blockchain and digital assets, has been at the helm of Custodia Bank, a Wyoming-based institution dedicated to providing banking services to the crypto industry. Her critique stems from a deep understanding of the sector’s needs and the regulatory barriers it faces.

She pointed out the need for a fresh perspective at the helm of the Federal Deposit Insurance Corporation (FDIC). The FDIC is a U.S. agency responsible for insuring deposits and regulating banks, and its policies have a direct impact on the crypto industry. The recent replacement of former FDIC Chairman Martin Gruenberg with Acting Chair Travis Hill on January 20 was noted, yet Long emphasized that Gruenberg’s resistance to technological advancement had left a lasting mark. “We need someone who understands the potential of blockchain and digital assets,” she argued, calling for a new FDIC chair to lead the charge.

Martin Gruenberg, who served as FDIC chairman for over a decade, was often criticized for his cautious approach to technological innovation in banking. His replacement, Travis Hill, brings a different perspective, but Long believes more needs to be done to truly embrace the potential of digital assets.

However, it’s not all doom and gloom. Long acknowledged the Securities and Exchange Commission’s (SEC) recent shift in approach, which includes the establishment of a Crypto Task Force, led by Commissioner Hester Peirce, and the revocation of Staff Accounting Bulletin 121 (SAB 121). The latter move, which previously required crypto holdings to be classified as liabilities, signals a more nuanced understanding of the crypto space. Yet, she remains cautiously optimistic, noting that no regulatory proposals have emerged under Trump’s administration yet.

Hester Peirce, known as “Crypto Mom,” has been a proponent of a more collaborative approach to regulating the crypto industry. The revocation of SAB 121, a rule that treated crypto assets as liabilities on banks’ books, is a significant step towards acknowledging the unique nature of digital assets.

The call for stablecoin regulations with stronger consumer protections was another focal point of Long’s speech. Referencing the collapse of Silvergate Bank, she warned, “In the crypto industry, we’ve learned that business model does not work.” The bank run on Silvergate underscored the vulnerabilities of traditional banking models, highlighting the urgent need for stablecoin issuers to hold cash reserves.

Stablecoins are cryptocurrencies designed to maintain a stable value, often pegged to a fiat currency like the U.S. dollar. The collapse of Silvergate Bank, which provided banking services to crypto firms, illustrated the risks associated with traditional banking models in the crypto space. Long’s call for stablecoin regulations emphasizes the need for these assets to be backed by sufficient reserves to protect consumers.

While the SEC has dropped several enforcement actions against crypto firms in February, hinting at a potential easing of cryptocurrency enforcement under Trump, the focus seems to be shifting towards immigration enforcement. This could mean a less aggressive stance on crypto, but without concrete regulatory proposals, the industry remains in limbo.

The shift in SEC enforcement priorities, coupled with the establishment of the Crypto Task Force, suggests a more balanced approach to regulation. However, the lack of concrete proposals under Trump’s administration leaves the industry in a state of uncertainty.

Amidst these regulatory challenges, the crypto community continues to push forward. At ETHDenver, discussions also revolved around Ethereum’s upcoming Dencun upgrade and the competition among layer 2 scaling solutions like Arbitrum, Optimism, Base, and Mantle. These technological advancements are crucial for scaling Ethereum’s capabilities and could influence future regulatory discussions.

The Dencun upgrade aims to improve transaction efficiency on Ethereum, particularly for layer 2 rollups. These advancements are essential for the growth of decentralized applications and could play a role in shaping future regulatory frameworks.

The broader political context, including Senator Elizabeth Warren’s concerns about crypto scams and Trump’s evolving stance on Bitcoin, adds another layer of complexity to the regulatory landscape. Meanwhile, the presence of Bitcoin, Solana, and Avalanche communities at ETHDenver highlights the interconnectedness of different blockchain ecosystems, each playing its role in the financial revolution.

Elizabeth Warren has been vocal about the risks of crypto scams, advocating for stricter regulations to protect consumers. Trump’s stance on Bitcoin has shifted over time, reflecting the dynamic nature of political views on cryptocurrency.

While the U.S. government’s regulatory inaction on crypto debanking is frustrating, it’s important to recognize the broader context. The crypto industry is still young, and regulatory frameworks are evolving. The SEC’s recent moves, such as the Crypto Task Force and the revocation of SAB 121, indicate a willingness to engage with the industry. However, the lack of concrete proposals under Trump’s administration highlights the need for continued advocacy and innovation within the crypto space.

As Caitlin Long aptly put it, “The banking system is stuck in the Stone Age while the crypto world is busy mining the future.” The challenge lies in bridging this gap, fostering innovation while ensuring consumer protection. The crypto community must continue to push for regulatory clarity, leveraging technological advancements to demonstrate the potential of blockchain and digital assets.

Key Takeaways and Questions:

• What has been the U.S. government’s response to crypto debanking under Trump?

  The U.S. government has not made any regulatory changes regarding crypto debanking since Trump’s return to office.

• What changes has Caitlin Long called for at the FDIC?

  Long has called for a new FDIC chair to replace Martin Gruenberg, whom she blames for the lack of innovation in the banking system.

• How has the SEC’s approach to the crypto industry shifted?

  The SEC has formed a Crypto Task Force, led by Commissioner Hester Peirce, and revoked SAB 121, which previously classified crypto holdings as liabilities.

• Why did Caitlin Long reference the collapse of Silvergate Bank?

  Long used the collapse of Silvergate Bank to illustrate the vulnerability of traditional banking models to bank runs and to argue for the need for stablecoin issuers to hold cash reserves.

• What are the expected regulatory priorities under Trump’s administration?

  Under Trump, regulatory priorities are expected to shift, with a potential easing of cryptocurrency enforcement and a focus on immigration enforcement.

As we navigate this complex landscape, the crypto industry’s resilience and innovation continue to shine. The balance between fostering this innovation and ensuring consumer protection remains crucial for the future of digital assets. Caitlin Long’s critique serves as a rallying cry for regulatory clarity and a reminder of the urgent need for change.