Leading Bitcoin bank, Custodia, has sued the Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas City, in order to force a decision on Custodia's application for a master account.
Custodia charges that their application has been “unlawfully” detained for 19 months; in contrast, the Federal Reserve's own paperwork states that a response is expected to take just five to seven days.
Custodia Bank was founded by Morgan Stanley alum Caitlin Long. Long generated interest quickly, drawing in $37 million in a Series A funding round from investors including Binance.US, Coinbase Ventures, and Morgan Creek Digital.
If Custodia Bank is granted a master account, it will be the first Bitcoin bank to receive one. The bank says a master account is “vital” to its mission, and in forcing a response from the Federal Reserve, Custodia has opened a case that could deeply impact the future of banking.
"Through this lawsuit, Custodia seeks to ensure that its Federal Reserve master account application receives the fair dealing and due process guaranteed to it by both federal statute and the U.S. Constitution,” said Custodia Bank spokesperson Nathan Miller in a statement. “Custodia has satisfied every rule applicable to it, and has gone beyond by applying to become a Fed member bank."
Long was one of the first mainstream bankers to defect to Bitcoin, leaving her Managing Director position at Morgan Stanley to join New York Blockchain startup Symbiont. There, Long helped to onboard $7 trillion asset manager Vanguard, among others, before venturing out on her own to found Custodia Bank.
Custodia Bank was founded in part to fight the spread of rehypothecation in Bitcoin. It was during her time at Morgan Stanley that Long became opposed to rehypothecation, a practice in which banks lend money to Party A who lends money to Party B. Long felt this practice could undermine the value derived from Bitcoin's coin limit.
To accomplish its goal, the bank would need a master account. A simple enough task for traditional banks, but unheard of in Bitcoin or cryptocurrency. Long revealed in 2020 that she was planning to release a stablecoin, which means that if Custodia Bank attains a master account, it could result in a "digital cheque" that can be cashed at banks.
Amidst calls for greater regulation of the space, as well as forces of change demanding the arrival of new paradigms, Custodia Bank's lawsuit against the Federal Reserve could prove definitive for Bitcoin's road ahead.