Custodia battens down hatches as it awaits Trump crypto pivot #CriptoNews

Custodia Bank is scaling back its business as it awaits what figures to be a more crypto-positive stance by the incoming Trump administration.

The Cheyenne, Wyoming-based crypto bank announced on its website Wednesday that it would further reduce its operations and preserve capital “in anticipation of major crypto policy reforms.” The move was voted on by the bank’s board of directors earlier this week.

Custodia has been among the leading proponents for integration of cryptocurrencies into the traditional banking system, having sought federal bank regulation and access to national payments rails. The company is engaged in a yearslong legal battle with the Federal Reserve over its rejected application for a so-called master account with the central bank.

In its statement online, Custodia said that the pullback will help it keep its special purpose depository institution, or SPDI, charter in the state as well as the interface software for its real-time payments and Bitcoin custody products. The bank said it is also looking to protect a patent on bank-issued stablecoins and its “clean compliance and operating record.”

Effectively, the shift enables it to continue as a going concern, but one with little — if any — day-to-day business operations.

The decision to hunker down comes less than two weeks after Custodia lost its banking partner — a critical blow to the firm, which cannot directly transact with other banking institutions. Custodia founder and CEO Caitlin Long announced the development on Nov. 7 in a post on X, the website formerly known as Twitter.

Long said Custodia was “debanked” as a result of what she and others in the crypto space refer to as “Operation Chokepoint 2.0,” a shorthand expression for the Biden administration’s oppositional approach to digital assets that references an Obama-era scandal in which bank regulators and the Justice Department pressured banks not to serve arms dealers, payday lenders and other unsavory but legal business. Long noted that this is not the first time a bank has dropped her bank because of governmental scrutiny, nor did it clarify which bank Custodia had been partnering with.

Long issued a written statement about the developments on Wednesday saying the bank will continue on in whatever way it can.

“I’m incredibly proud of the Custodia team, the services we’re building for our customers, and our resilience in the face of repeated debankings due to no fault of our own,” Long said. “I especially thank Custodia’s customers and shareholders who have helped us continue the fight for durability of banking access for the law-abiding U.S. crypto industry.”

As both a candidate and president-elect, Donald Trump has praised crypto as an area with significant growth potential and said he would implement policies to make the U.S. a global leader in the industry. He has also pledged to install regulators who “love” the technology.

It is unclear what the change of administration will mean for Custodia’s litigation with the Fed, which is currently before the U.S. Court of Appeals for the 10th Circuit as the bank looks to reverse a lower court ruling in favor of the central bank.

Oral arguments in the lawsuit are scheduled to take place on Jan. 21, 2025, the day after Trump’s inauguration.