Custodia Bank CEO Caitlin Long has strongly criticized the U.S. Federal Reserve, accusing it of creating an uneven playing field that favors big banks while constraining broader crypto innovation. Speaking out via an April 27 post on X, Long argued that despite rolling back several anti-crypto measures from the Biden era, the Fed strategically left in place one critical rule that continues to stifle competition. According to Long, this surviving policy gives traditional financial institutions a major advantage in the emerging stablecoin economy.
Long outlined the key issues at stake. First, banks are barred from holding crypto directly, even to pay small transaction fees such as gas on public blockchains. Second, banks are still prohibited from issuing stablecoins on public blockchain networks like Ethereum. Third, while other regulators such as the OCC and FDIC have evolved their stance, the Fed remains committed to favoring private blockchains operated by large banks. This quiet preference, Long warned, could tilt the future of stablecoins toward a handful of major players and sideline open innovation.
The consequences for banks attempting to offer crypto custody services are serious. Because they cannot pay fluctuating gas fees themselves, banks risk transaction failures when fees spike, making crypto custody impractical. This restriction subtly pushes financial institutions away from offering digital asset services altogether, a move Long sees as intentional.
Although the Fed announced it was lifting four key restrictions on crypto activities earlier this month, Long claimed the rollback was mainly a public relations exercise. The Fed omitted any mention of its continued support for private stablecoin ecosystems, misleading much of the public and even regulators. The White House’s praise for the Fed’s move, Long suggested, reveals how deeply misunderstood the actual policy changes were.
Meanwhile, political figures like Senator Cynthia Lummis echoed Long’s skepticism. Lummis warned that federal regulators still wield “reputational risk” as a weapon against banks engaging with crypto. She vowed to continue holding Federal Reserve Chair Jerome Powell accountable until meaningful reforms are made.
Long’s larger concern is that unless these hidden restrictions are addressed, the U.S. crypto sector will continue to fragment, with innovation moving to DeFi platforms and more crypto-friendly states like Wyoming. In her view, the Fed’s selective deregulation is less about supporting crypto and more about securing big banks’ dominance in the next evolution of digital finance.
