Custodia Bank sued the US Federal Reserve because it refused its application for a digital “Master Account.”
The case, which has gotten a lot of attention, makes people wonder about the fairness of the regulatory process and the bigger problems the crypto business faces.
Murphy Unveils ‘Operation Chokepoint 2.0’ Impact
The well-known crypto legal expert James “MetaLawMan” Murphy of Ludlow Street Advisors has been one of the first to speak on what he calls “Operation Chokepoint 2.0,” which is said to be an effort by regulators to stop the crypto sector from using standard banking systems.
It’s not just the SEC.
The Federal Reserve leads the Operation Chokepoint 2.0 crackdown on crypto.
Custodia Bank @custodiabank has sued the Fed because it failed to approved Custodia’s application for a Fed “master account.”
A Fed “master account” is essentially a bank account…
— MetaLawMan (@MetaLawMan) January 31, 2024
The Fed’s handling of Custodia Bank’s master account application is important here. For banks to use important services like check clearing, wire transfers, and Automated Clearing House (ACH) payments, they need a master account.
Even though Custodia Bank is a Wyoming-chartered institution, its application was not processed for 20 months for no clear reason. Eight months after filing a case against the Fed, it was simply rejected.
Murphy compares what the Federal Reserve (Fed) did and how the Securities and Exchange Commission (SEC) handled Coinbase’s case. This suggests a coordinated effort to stop digital assets from being used in traditional banking.
We’ve filed our response with the Third Circuit. Tl;dr: the SEC’s unilluminating “update” is mere bureaucratic pantomime and confirms that nothing short of mandamus will prompt the agency to take its obligations seriously. 1/3 https://t.co/DC1o8EflcH
— paulgrewal.eth (@iampaulgrewal) October 14, 2023
“The Fed’s response to Custodia’s application, especially when viewed in conjunction with similar regulatory actions, suggests a coordinated effort to limit the integration of digital assets into the traditional banking system,” says Murphy.
There were differences between the Kansas City Fed’s and the Federal Reserve in DC’s opinions found during the court case. The Kansas City Fed’s initial positive results were changed in the DC Fed’s final report, which played a role in Custodia’s application being denied. Murphy discusses significant changes in critical areas like cash, risk management, liquidity, and management experience.
“The revision of the Kansas City Fed’s findings by the DC Fed office raises serious concerns about the impartiality of the review process and appears to reflect an underlying bias against the crypto sector,” says Murphy.
To show their support for Custodia Bank, the Blockchain Association and the Attorney General of Wyoming have added their names to the move for summary judgment that the bank has made. Murphy stresses that this court case symbolizes the broader battle for the crypto industry to be recognized and accepted within the standard financial system.
CEO of Custodia Caitlyn Long is praised by Murphy for her strength and drive in what he calls a “David versus Goliath fight.” He says Long’s fight isn’t just against Custodia; it’s for the rights of the whole Bitcoin industry and financial freedom in general.
