Caitlin Long criticizes US Fed’s stablecoin policy favoring big banks

Caitlin Long criticized the US Federal Reserve’s stablecoin policy, arguing that it benefits big banks.

Long explained that despite relaxing some crypto rules, the Fed still upholds a policy that blocks banks from directly engaging with cryptocurrencies.

While the US Federal Reserve loosened restrictions on crypto partnerships for banks, Caitlin Long, CEO of Custodia Bank, criticized the Fed for quietly maintaining a policy that supports big-bank-issued stablecoins over crypto alternatives.

Long detailed in an April 27 X thread that although the Fed rolled back four crypto rules, it left the Jan. 27, 2023, statement, made alongside the Biden administration, unchanged.

Long argued that the guidance prohibits banks from dealing directly with crypto assets and from issuing stablecoins on permissionless blockchains.

“THE FED HAS MAINTAINED A REGULATORY PREFERENCE FOR PERMISSIONED STABLECOINS (ie, big-bank versions),” Long stated.

She expressed concern that this move allows traditional financial institutions to get a “head start” in rolling out private stablecoins, while the broader market holds off for stablecoin regulation from Congress.

Long predicted that a federal stablecoin bill could eventually override the Fed’s stance once it becomes law. She urged, “Congress should move quickly.”

Long pointed out that the Fed’s policy, in addition to stablecoin restrictions, prevents banks from participating as principals in the crypto market and from making markets in assets like Bitcoin, Ether, or Solana.

She also mentioned the operational challenges banks face in providing crypto custody services, especially the restriction on covering gas fees for on-chain transactions, which is standard practice for crypto custodians but limited under existing Fed rules.

In conclusion, Long stated that the Fed’s stance creates friction for banks entering the crypto custody market while advancing the use of permissioned stablecoins supported by major financial players.

“The Fed definitely won on PR spin–its press release listed a long list of guidance it rescinded but omitted ANY mention of the guidance it kept. That duped *a lot* of smart people, understandably,” according to Long.

Senator Cynthia Lummis, a vocal advocate for digital assets, labeled the Fed’s action “lip service,” implying that legislative challenges could arise soon.

Lummis cited Section 9(13) of the Fed’s policy statement and noted that it has not been retracted and that Bitcoin and digital assets remain considered “unsafe and unsound.”

In contrast, a number of crypto executives expressed approval of the Fed’s announcement, calling it a good sign for the industry.

Michael Saylor, the CEO of Strategy, noted in an April 25 X post that the Fed’s decision enables banks to begin backing Bitcoin.