“Shame on Washington,” Custodia Bank CEO Slams U.S. Crypto Crackdown

Caitlin Long believes the U.S. government must amend its crypto regulatory approach.

Custodia Bank Chief Executive Officer Caitlin Long has slammed the United States government for alienating good actors in the crypto space and opting for a broad industry crackdown.

The former Morgan Stanley managing director expressed these views in a blog post published on Feb. 17 titled “Shame On Washington, DC For Shooting A Messenger Who Warned of Crypto Debacle.” Long asserted that the government, with its current approach, is “taking a big step backward.”

Long Compares Crypto Today to the Early Stages of the Mutual Fund

The Wall Street veteran compared crypto now to the nascent mutual fund industry in the 30s, which was rife with leverage and fraud. However, as she points out, the government succeeded in cleaning up the industry through a partnership with good actors who called out the corruption of fellow industry participants after it realized that harsh regulations meant to discourage its use were not in the interest of the American people.

In contrast, Long believes that the U.S. government today is doing the opposite and moving against innovation, scapegoating those that have consistently called out risks in the ecosystem and called for regulation. Using herself as an example, the Custodia chief in the post claimed that she had handed over evidence to the authorities to expose a fraudulent crypto company months before it collapsed, leaving its customers with millions in losses. In addition, she said she also warned bank regulators of the mounting risks of bank runs in crypto-facing banks before the bank runs happened.

However, in return, she has seen her company Custodia which she claims went “above and beyond” to become a member of the Federal Reserve System, denied its application. Long wrote in her post that Custodia was denied an opportunity to become federally regulated and substantially discouraged from trying again, receiving what she described as simultaneous attacks from the White House, the Federal Reserve Board of Governors, the Kansas City Fed, and Senator Dick Durbin. The latter, which she says unduly lumped in Custodia with FTX in a recent speech. 

The Custodia chief opined that regulators and lawmakers are out for blood because they are embarrassed by their failings in stopping crypto criminal elements. She points out that the same lawmakers and regulators seeking a market-wide crackdown were in bed with the fraudsters. No doubt Long is referring to lawmakers and members of the Securities and Exchange Commission, including the chair Gary Gensler that routinely met and consulted with Sam Bankman-Fried.

The Custodia chief expresses pessimism at the outcome of the U.S. government’s approach, believing it would lead to chaotic and responsive enforcement actions from regulators at best.

“Washington’s misguided crackdown will only push risks into the shadows, leaving regulators to play whack-a-mole as the risks continuously pop up in unexpected places,” she wrote.

Kraken CEO Supports Long’s Views 

Unsurprisingly, the Custodia CEO’s views have received enormous support from the crypto community, including Jesse Powell, Kraken’s chief executive officer.

Recall that the crypto exchange was recently at the receiving end of an enforcement action from the SEC. Notably, the agency alleged that the firm’s crypto staking service represented an unregistered security, forcing it into a $30 million settlement and instructing the long-standing crypto exchange never to offer the service to U.S. customers again.

Powell, in response to Long’s views, asserted that it was “infuriating” to be victimized after pointing out illicit activities by industry peers in the past.

Notably, these views come as policies from lawmakers and regulators are taking an increasingly anti-crypto undertone. In no mild tones, the Fed, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation have discouraged banks from working with crypto even as the SEC is cranking up crypto enforcement actions, even though the industry still lacks clear rules, with little talk of any in the pipeline.

CryptoLaw founder Attorney John E. Deaton citing the negative sentiment towards crypto and polarization in Congress, has asserted that the industry will not receive legislation till at least 2025.