Caitlin Long Slams US Fed’s Restrictive Stablecoin Policy Favoring Big Banks

Are you keeping up with the latest twists in US crypto regulation? Caitlin Long, founder and CEO of Custodia Bank, has voiced strong criticism regarding the approach taken by the US Fed (Federal Reserve) concerning stablecoin policy and overall bank engagement with crypto assets.

Caitlin Long Takes On The US Fed’s Approach

In a recent public statement, Caitlin Long didn’t hold back. She pointed out that while the US Fed made some announcements suggesting a relaxation of rules around banks partnering with crypto firms, a critical anti-crypto policy remains firmly in place. This specific policy, according to Long, was issued in early 2023 in coordination with the Biden administration.

Understanding the Controversial Stablecoin Policy

So, what’s the big deal with this policy? Caitlin Long highlights a key issue: it seems to create a regulatory preference that favors specific types of stablecoins and limits how banks can interact with crypto directly. Here’s a breakdown:

• The policy allegedly prevents banks from holding crypto assets directly on their balance sheets.
• It reportedly blocks banks from issuing stablecoins on open, permissionless blockchains, which are common in the crypto world.
• This effectively pushes banks towards issuing stablecoins on permissioned networks, often controlled by larger institutions.

Caitlin Long argues this specific stance on stablecoin policy gives an unfair advantage, essentially giving big banks a ‘head start’ in the race to launch their own stablecoin versions while the broader market awaits clear federal legislation.

What Does This Mean for Crypto Regulation and Banks?

Beyond stablecoins, Long points out that the existing US Fed policy creates significant hurdles for banks looking to participate more broadly in the crypto space. This includes challenges for banks wanting to:

• Act as market makers for major cryptocurrencies like Bitcoin (BTC), Ether (ETH), or Solana (SOL).
• Offer crypto custody services to clients. Long specifically mentioned the operational difficulty banks face in covering transaction fees (gas fees) on blockchains under current rules, which is a standard practice for crypto custodians.

In essence, Caitlin Long believes this policy keeps ‘sand in the wheels’ for banks attempting to enter the crypto custody business, while simultaneously smoothing the path for permissioned stablecoins potentially issued by big banks.

Is Congress the Solution for Stablecoin Policy?

Caitlin Long believes that comprehensive federal stablecoin legislation passed by Congress could potentially override the US Fed’s current restrictive policy. She has urged lawmakers to move quickly on this front.

Mixed Reactions to the Fed’s Actions

It’s worth noting that the US Fed’s recent announcements received varied responses. While Caitlin Long and others like Senator Cynthia Lummis criticized the Fed’s move as potentially misleading or ‘lip service’ (Senator Lummis noted an unwithdrawn statement considering digital assets ‘unsafe and unsound’), others saw it more positively. Michael Saylor of MicroStrategy, for instance, interpreted the Fed’s actions as clearing the way for banks to begin supporting Bitcoin.

The Ongoing Debate on Crypto Regulation

The differing views highlight the complex and often contentious nature of crypto regulation in the United States. While some see incremental progress, others like Caitlin Long remain critical of policies they believe protect established financial players, particularly big banks, at the expense of broader market participation and innovation in areas like stablecoin policy.

The debate continues: How can the US Fed balance financial stability concerns with fostering innovation in the digital asset space? The focus remains on Congress to provide clearer legislative guidance, especially concerning stablecoins, to potentially unlock greater participation from regulated financial institutions.