The hosts of the CoinStories podcast discuss the state of cryptocurrencies following the global market sell-off.
The Biden administration's tightening of regulations on cryptocurrencies has led to major restructuring at some of the smaller but better-known crypto banks.
Custody Bank, a Wyoming-based financial institution that provides banking services to cryptocurrency companies, notified employees on Thursday morning that it would be laying off nine of its 36 employees in order to preserve capital while fighting the country's central bank in court, FOX Business reported.
The layoffs come as Custody is in the midst of a legal battle with the Federal Reserve over access to so-called master accounts, which allow state-chartered financial institutions to access the Fed's liquidity facilities, including settlement services. Without them, banks would be forced to transact through other financial institutions that do have master accounts, often at high cost.
Pedestrians pass by the Federal Reserve Bank Building in Washington, DC on June 3, 2023. (Nathan Howard/Bloomberg/Getty Images)
At the same time, banking regulators have warned traditional banks against doing business with cryptocurrency companies, citing riskier aspects of the digital asset business, including price volatility and a lack of clear regulation at the federal level.
Custody is a small state-chartered bank, but it plays a vital role for businesses that don't have access to banking services elsewhere.
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Custody officials blame the cuts on the federal government's “Operation Choke Point 2.0,” a term commonly used in the crypto industry to describe what is seen as a coordinated effort by the Biden Administration to separate the crypto industry from the banking system as a whole. The colloquial term is a play on the Obama administration's “Operation Choke Point” effort, which “cut off” banking access for industries deemed “high risk,” such as payday lenders, gambling operators, and gun dealers.
“Operation Chokepoint 2.0 has dealt a devastating blow to the law-abiding U.S. cryptocurrency industry, hitting Custody Bank hard despite our strong track record of risk management and compliance,” Custody's founder and CEO Caitlin Long said in a statement to FOX Business. “We are rightsizing our company to ensure we can continue to operate while preserving capital until Operation Chokepoint 2.0 ends or our litigation with the Fed is successfully concluded.”
Custody Bank CEO Caitlin Long spoke at the Mesari Mainnet Summit in New York on September 21, 2023. (Michael Nagle/Bloomberg via Getty Images/Getty Images)
Long did not elaborate on the impact on the company's profits, but reiterated that operations continue as usual and that the recent developments will not affect Custodia's lawsuit.
The Federal Reserve declined to comment.
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Regulators such as Deputy Treasury Secretary Wally Adeyemo said as recently as three weeks ago that there was no concerted government effort to shut the crypto industry out of the financial system altogether, but industry players have been posting receipts on social media about having their personal accounts closed by banks due to their involvement with cryptocurrencies.
Deputy Treasurer Wally Adeyemo spoke in London on October 27, 2023. (Daniel Leal/AFP via Getty Images/Getty Images)
Custody confirmed to FOX Business that two of its partner institutions have ended their relationships with the bank for this reason.
The bank's job cuts come just two months before a crucial election that will determine the fate of the cryptocurrency industry: former President Trump, who has been a supporter of the industry, will face off in November against Vice President Kamala Harris, who has yet to make a clear statement about her views on cryptocurrencies.
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In recent weeks, Harris' representatives have been reaching out to establish connections with key figures in the cryptocurrency world, and many in the industry feel that as vice president, Harris has been tacitly complicit in the Biden administration's actions against the sector.
