Custodia Bank, a Wyoming-based financial institution serving crypto companies, announced nine employees would be let go due to ongoing legal challenges and financial pressures exacerbated by the Biden administration’s stringent crypto regulations, according to a new report from FOX Business.
Custodia is pursuing legal action against the Federal Reserve (Fed) after being rejected for access to the Fed’s payment systems. Without access to the system, it is hard for them to make money.
The move comes as Custodia Bank is embroiled in a lawsuit against the Federal Reserve Bank of Kansas City regarding its application for a master account, which is essential for accessing the Federal Reserve’s payment systems.
No Access
The lawsuit was filed after the bank’s application for a master account was rejected by the Fed. Custodia claims that the Federal Reserve unlawfully delayed its application process, which was submitted in October 2020.
Custodia Bank’s CEO, Caitlin Long, said her bank “has been hit hard” by Operation Choke Point 2.0, an initiative by U.S. regulatory bodies that advocates believe restricting the cryptocurrency industry’s access to banking services.
Long added that adjusting the operation size was necessary to survive financial difficulties until the program ended or the lawsuit was resolved in favor of the bank.
“Operation Choke Point 2.0 has been devastating for the law-abiding US crypto industry,” Long stated. “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.”
The layoffs directly respond to the challenging regulatory environment surrounding cryptocurrency, mainly influenced by federal warnings about the risks associated with digital assets.
The Anti Crypto Stance
The Biden administration’s regulatory stance on cryptocurrency has increased caution among traditional banks regarding their relationships with crypto firms. The perceived hostile environment has created a precarious situation for Custodia and similar institutions, which rely on banking services to operate effectively.
Some regulators, like Deputy Treasury Secretary Wally Adeyemo, have denied a targeted crackdown on the cryptocurrency sector. Despite the claims, several users have reported that their bank account was suspended due to their connection with crypto.
Custodia told FOX Business that it lost two partner institutions due to the ongoing challenging regulatory environment surrounding cryptocurrency.
The Winklevoss twins, co-founders of Gemini, have expressed strong concerns regarding Operation Choke Point 2.0, which they see as an ongoing regulatory crackdown on the cryptocurrency industry.
Tyler Winklevoss previously cited the Federal Reserve’s recent actions against Customers Bank, a crypto-friendly institution, as evidence of this initiative. He pointed out that the Federal Reserve found “significant deficiencies” in Customers Bank’s anti-money laundering compliance.
As a result, the bank must now provide a 30-day notice before entering into any new banking relationships with cryptocurrency companies.
Tyler Winklevoss criticized this move, stating that it effectively positions the Federal Reserve as a gatekeeper for crypto banking services, creating a “choke point” for the industry.
He also warned that if Vice President Kamala Harris wins the upcoming election, the regulatory environment for crypto could worsen. Harris’ campaign team was reported to have connected to major industry firms in a bid to rebuild the relationship with the crypto industry.
Tyler Winklevoss stated that current regulatory measures are a prelude to harsher actions. Gemini’s co-founder believes the administration’s stance towards cryptocurrency remains fundamentally anti-crypto despite any proposed “reset” in the policy.
The debates come as the U.S. prepares for its next leader. Former President Donald Trump has promised to end Operation Choke Point 2.0 if elected president in the upcoming election.
Former Commodity Futures Trading Commission chair Chris Giancarlo noted that Trump has prior experience in ending the original Operation Choke Point during his administration, which targeted specific high-risk industries like payday lenders and firearms dealers.
