- The Fed has been criticized by Caitlin for maintaining its key anti-crypto policies while relaxing others.
- Fed’s hidden policy blocks banks from holding crypto and favors permissioned stablecoins.
- Senator Lummis criticized the Fed’s move, calling it lip service to genuine crypto reform.
Caitlin Long, Custodia Bank CEO, has accused the Federal Reserve of misleading the public on its crypto policy shift. She alleges that the Fed’s recent announcement about loosening crypto rules was really just a ruse for the major restrictions to still be in place.
Long, in a detailed post on X, outlined that whereas the Fed ditched four bits of advice, it kept one central anti-crypto policy, which was released in Jan 2023. She pointed out that the untouched rule prevents banks from directly interacting with cryptocurrencies and stablecoins on the open blockchains.
Fed Move Favors Big Banks and Permissioned Stablecoins
According to Long, the surviving policy blocks banks from holding crypto as principals. This prevents them from paying even basic transaction fees. It also bars banks from issuing stablecoins on permissionless blockchain networks. This restricts them to only private, bank-controlled systems.
Long says that this is a big advantage for big financial institutions. Traditional banks can now launch permissioned stablecoins without competition from decentralized projects. The Fed’s actions, she said, enable Wall Street players to create dominance before stablecoin legislation.
She added that the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) ditched their inclination for permissioned systems, but the Fed quietly stood by. According to her, this anonymous policy threatens to mold the future of the stablecoin market before Congress establishes regulatory frameworks.
Other than stablecoins, Long said that the stage for crypto custody is operational. According to her, this explains why crypto custodians often bear unpredictable gas fees. However, transactions often fail as banks are not allowed to make direct payments. Long warned that these restrictions discourage banks from offering serious crypto custody services, hampering broader adoption. This policy, she said, ‘throws sand in the gears’ of any bank that is building digital asset infrastructure.
Public Deceived While White House Praises Fed’s Action
Long accused the Fed of telling a different story by drawing attention only to the rules it has rescinded without mentioning the vital policy it retained. Even the most informed observers were misled, which enabled the Fed to pull a publicity victory.
The White House meanwhile praised the Fed rollback but didn’t acknowledge that the most restrictive rule is still in place. She asked if the Fed maneuver was something the White House really understood or if they were just ignoring it.
Senator Cynthia Lummis, a strong crypto advocate who heads the Senate Banking Committee’s Digital Assets Subcommittee, also expressed her concerns. She described on X that the Fed action was ‘lip service’. She said the agency was wasting time using its old ‘anti-crypto’ way of supervising.
Lummis noted that the same types of officials in the controversial Operation Chokepoint 2.0 under the Obama administration are crafting crypto policy today. She warned that the reliance of the Fed on the reputation risk supervision was holding back the growth of the sector.
Both Long and Lummis urged Congress to rush stablecoin legislation. They reiterated that if a new law passes, it can cancel the Fed’s current willingness to enable permissioned stablecoins and bring the market to fairer competition. The future of crypto integration into the U.S. banking system will depend on how Congress will respond.
