Wyoming-based Custodia Bank, founded by prominent cryptocurrency advocate Caitlin Long, faces a pivotal moment in its protracted legal battle with the Federal Reserve. A tweet from Ms. Long on July 23, 2025, featuring multiple alarm emojis, signaled a significant development in the bank's ongoing efforts to secure a master account and operate within the traditional banking system. This comes after years of legal challenges and regulatory hurdles for the crypto-focused institution.
Custodia Bank, established as a special purpose depository institution (SPDI) under Wyoming law, has sought direct access to the Federal Reserve's payment systems via a master account since its application in 2020. This access is crucial for the bank to bypass intermediary institutions, reducing costs and operational complexities for its digital asset services. The Federal Reserve, however, denied Custodia's application in January 2023, citing concerns over the bank's "novel" business model and potential safety and soundness risks associated with its focus on digital assets.
The denial led Custodia to file a lawsuit against the Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas City, alleging unlawful delay and an arbitrary denial of its application. In April 2024, a federal judge in Wyoming ruled against Custodia, affirming the Federal Reserve's discretion to deny master account applications. This ruling was seen as a significant setback for crypto-native banks seeking direct integration into the U.S. financial system.
Custodia Bank subsequently appealed this decision, with oral arguments for the appeal having taken place on January 21, 2025. The "
" tweet from Caitlin Long, a vocal critic of what she describes as "Operation Chokepoint 2.0" targeting the crypto industry, underscores the continued high stakes for Custodia and the broader digital asset banking sector. The outcome of this appeal, or related regulatory actions, will likely define Custodia's operational future and set a precedent for other institutions aiming to bridge traditional finance with digital assets.
The ongoing regulatory scrutiny has already impacted Custodia, leading to a workforce reduction in 2024 as the bank sought to preserve capital amidst its legal and operational challenges. The industry continues to watch closely, as the resolution of Custodia's case will provide crucial clarity on the path forward for crypto-focused banks within the U.S. regulatory framework.