CoinStories podcast host discusses the state of cryptocurrencies following the global market selloff.
The Biden administration’s regulatory crackdown on cryptocurrency has caused a significant restructuring at a small, but high-profile crypto bank.
FOX Business has learned that Custodia Bank, a Wyoming financial institution that offers banking services to crypto companies, informed staff Thursday morning that it will lay off nine of its 36 employees in an effort to preserve capital as it battles the nation’s central bank in court.
The layoffs come as Custodia is locked in a legal battle with the Federal Reserve to gain access to a so-called master account which gives state-chartered institutions access to the Fed’s liquidity facilities, including payment services. Without a master account, banks are forced to do business through other institutions with master accounts, which often incurs high costs.
A pedestrian passes the Federal Reserve building in Washington, D.C., on June 3, 2023. (Nathan Howard/Bloomberg / Getty Images)
At the same time, banking regulators have been cautioning traditional banks against doing business with crypto firms due to the riskier aspects of the digital assets business such as price volatility and a lack of clear regulation at the federal level.
Custodia is a small, state-chartered bank but plays a crucial role for businesses that have otherwise been unable to gain access to banking services elsewhere.
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Custodia officials blame the reduction on what they call the federal government’s “Operation Chokepoint 2.0” – a term that’s gained popularity in the crypto industry for what they see as a coordinated effort by the Biden administration to cut off the industry from the wider banking system. The colloquial term is a play on an Obama-era initiative known as “Operation Choke Point,” where banking access was “choked off” from industries perceived to be “high-risk,” such as payday lenders, gambling operators and firearms dealers.
“Operation Choke Point 2.0 has been devastating for the law-abiding U.S. crypto industry, and Custodia Bank has been hit hard despite our strong risk management and compliance track record,” Custodia founder and CEO Caitlin Long said in a statement to FOX Business. “We are right sizing so we can maintain operations while preserving capital until after Operation Choke Point 2.0 ends or our Fed lawsuit concludes successfully.”
Custodia Bank CEO Caitlin Long speaks during the Messari Mainnet summit in New York on Sept. 21, 2023. (Michael Nagle/Bloomberg via Getty Images / Getty Images)
Long would not elaborate on the impact, if any, on company profits, but reiterated that operations would continue as normal and recent developments will not affect Custodia’s lawsuit.
The Federal Reserve had no comment.
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Regulators such as Deputy Treasury Secretary Wally Adeyemo have said as recently as three weeks ago that there is no coordinated effort by the government to shut out the crypto industry from the broader financial system. However, industry participants have taken to social media to post receipts and describe their experiences with banks terminating their personal accounts apparently due to their interactions with crypto.
Deputy Treasury Secretary Wally Adeyemo delivers a speech in London on Oct. 27, 2023. (Daniel Leal/AFP via Getty Images / Getty Images)
Custodia confirmed to FOX Business that two of its partner institutions terminated their relationships with the bank for this reason.
The bank’s layoffs come just two months ahead of a pivotal election that could decide the fate of the crypto industry. Former President Trump, who has embraced the crypto industry, will face off in November against Vice President Kamala Harris, who has yet to give any definitive statement about her views on crypto.
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In recent weeks, Harris’ surrogates have reached out to establish connections with major players in the crypto world. Many in the industry feel that, as vice president, she has been tacitly complicit in the Biden administration’s actions against the crypto industry.
