Aug 18, 2023

Crypto-friendly Custodia Bank announced a week ago that it launched to business customers in a number of states.

Video transcript

The state of crypto is presented by Tron connecting the world to the power of Cryptocurrency. All right. Custodio Bank has gone live one week ago, the Crypto Friendly Bank announced that it launched its business uh to customers. Joining us now is Caitlyn Long Custodio Bank founder and CEO. Welcome to the show, Caitlin. Hey, great to be on again. Good morning. Good afternoon. Good evening. Wherever you are. Good morning. Good morning. All right. Before we get into the news, I got to get your reaction to the markets this morning. Is all anyone is talking about? Yeah, Lawrence, I thought your explanation was great. Really great. I was nodding my head. I don't know if your uh producers could see that off screen and, and laughing at, at uh at the jokes you made too. I think that's right. Uh You know, it, it, we tend to be so America focused if we're on shore in the United States because there is a daily news flow coming out of Washington DC and whether Gary F lost his this morning, he does make news in this, in this, in the crypto sphere, but that's not what is driving it, there's definitely a, it's a global market, truly, a global market. There's a lot more adoption offshore than there is onshore and most of the US volume at this point. Well, really in the last couple of years has tended to be not adoption for payments, but for speculation. And we need those speculators for liquidity purposes. But in other parts of the world where folks are using Bitcoin for payments, they're not here to speculate. So your, your point was spot on, we should change. We should uh make a new tagline for the show. Come for Lawrence's sharp analysis and stay for the jokes. Thank you for pointing that out. But Lawrence doesn't get enough praise for his jokes. They are very good jokes. No, you're, you're absolutely right. And their dad jokes that my kids want to file child abuse charges against the dad jokes. Yeah. No, but, but again, you're right that uh we tend to focus on things that don't really move the volume because what's going on it is we don't really know and you're what's going on in China, in particular. I am watching the deflationary trends in China and how those are going to interact with the inflationary trends in the rest of the world. Fascinating because we're seeing a big move with a 10 year yield in the US. Well, above 4% that starts to get uncomfortable, you start to see tech stocks trade off and you certainly see crypto move with tech stocks. And, uh, and we've had a big correction in the 10 years. So we're, we're in a volatile time and here comes volatility. That's not bad. But I, but I'll just understand underscore what I've said many times before. Personally, I think price is the least interesting aspect of Bitcoin and these technologies generally, to me, they're technologies and during these crypto winters, this is when a lot of building gets done and that's exactly what custodian has been doing. So what, what's your take on Prime Trust here? I, I mean, they're, they're a little uh they're, they're in your part of the, the world, uh the American West. Uh and uh they seem to have, have had issues. Uh what does that mean for custodians uh in the United States? Um And what does it mean for how you approach regulators when they look at this and go? Are you another prime trust? Yeah. The biggest, the biggest impact of Prime Trust I think is something that not many folks are talking about, which is the chilling effect of state regulators watching what happened there because it's now come out that they lost access to a wallet for in, in, at the end of 2021 and did a capital raise to try to backfill again. It's usually the cover up, not the crime, so to speak, not clear whether they disclosed to investors that that was the use of proceeds was to backfill that hole, but the company wasn't shut down by the regulators for almost two years and eventually it will all come out what happened there. Uh But it seems like there was some bad news withheld from the regulators. Now, I think what's so interesting is that New York with the paypal Stable coin approval and Wyoming with custodian launching and another speedy going to be launching soon, you see two states that have real regulatory regimes. For example, in Wyoming, the digital asset custodians that are speedy banks must not only be able to handle a surprise audit to prove the balances of the assets on control, but also control of every single wallet at any given time. So what happened to prime trust? Literally, the Wyoming regime already has it covered from a regulatory perspective. So long story short, you've got both New York and Wyoming ready to roll and moving forward. But I think in other states that don't have those regulatory regimes, you, you're going to see a chilling effect. You start in custodian in 2020. Now the launch is finally here. Given the regulatory climate, what does this next step mean to you? And what battles do you anticipate facing as you move forward? Well, the great thing is that the US states can move forward as I was alluding both New York and Wyoming are moving forward. Uh We've, we, we learned through the grapevine that the fed did object to paypal uh issuing its stable coin, but New York approved it and as you saw paypal and announced it, congratulations to them. They're off to the races. So, same thing with custodian, we're off to the races with us. Dollars and money market fund services and imminently Bitcoin custody as soon as we get the final regulatory approval and we're not like to be clear, launched in all states, not licensed in all states yet. But uh we're ready for the next bull market. That's, that's the punch line. Uh ready to scale into that with both us dollar services, money market fund services and then uh fingers crossed Bitcoin custody soon. Do you have a timeline on Bitcoin custody? Not yet. Uh The way the Wyoming regulatory structure works is when the companies are ready to do digital asset custody, they notify the regulator and the regulator has to come in and uh do an exam and do a big checklist. And so we're at the mercy of the timeline of the regulators on that. So, uh what's going on with you and the fed? Uh where, where does it stand right now? You, you, you've been uh you know, you guys, they're not inviting you over for lunch. So what's happening? Uh Well, uh it's public information that the lawsuit is in flight, there's no communication otherwise. Uh and uh the we're in the process of a lawsuit called Discovery. It's public information that will be in that period, period through mid December. And there is a trial, trial date scheduled for April. So you're not being asked to come in and then they, they, they hit you with a bunch of, uh, violations and things like that. Well, no, that already happened, you know. And it's interesting. Yeah. But I'm saying, like, they're not doing it again. They, they, it seems to be the favorite. Right. Yeah. No, literally talk about it again. Yeah. No, the history, the history was they, they did back channel to us that we could apply to become a member. Bank Wink Wink and we did and then back channeled to us. That was a good move. And there was a fed governor who then told one of Wyoming's senators. Uh that one of the Wyoming speedy applicants had distinguished itself by applying to become a member bank. Ok. We're the only one that did that. So they were clearly talking about us. So, so clearly we were, we were in, we were lured in and then rug pulled. Uh So it, it uh will they will, will that happen again? Uh uh Fool me. Once I got to ask you about this recent FDIC report, it noted crypto as one of the five big risks to banks. It's not the only report that's come out over the last few months that have said this. Um What did you think of that? What do you think of these reports that, that come out and do they affect in any way how you plan for the future? No, they, they're, they're now laying out the risks that they should have been laying out a few years ago. And that we especially me, I was giving speeches about the the bank run risks in the bank servicing the crypto industry going back to 2020 at the Cato Monetary Conference. I gave a keynote where I warned that the banks that were serving this industry were subjected to higher bank run risks specifically because stable coins literally could fail within the span of a few hours. And behind the scenes, I was talking to the bank regulators and, and in fact, actually about this risk. In fact, actually, if you look at the Occ Acting Comptroller, Michael Sue, he gave me a credit in a footnote of a speech he gave in 2021 talking about liquidity risks. So he was, he was the first of the big federal regulators who was on to this issue, but they didn't do enough ahead of time to, to require the banks that were engaging in serving the digital asset industry to require them to sit on a lot more liquidity so that in the event of a run, they could stay liquid and solvent. And we saw fortunate that they did not. So the the F Ds is right to call out these risks. And frankly, that's again why the Wyoming Speedy banks are structured the way we are, we acknowledge these liabilities could move in the span of minutes and therefore, you cannot do the traditional borrow short term and invest long term business model that banks do. And that's part of the reason that Silver Gate and Signature didn't make it. They were trying to engage in that so called maturity transformation business with hottest of hot money liabilities that could all be withdrawn in the span of minutes. And so if you're the way to make a solvent bank and a and a and a safe and sound bank with that clientele is for the bank to invest 100% in cash and cash equivalents, you know, short term U treasuries, cash on deposit at the fed cash at other banks, those kinds of things. And that's how the banks can survive a bank run like that. That's exactly what the Wyoming speedy banks are structured to do. So you called fed now uh Very un-american. Are you suggesting Powell hates God mom and apple pie? Are you saying it out? Right? I didn't call Fed now Un American. I called the fact that the Fed allowed a European fintech to be among its first group of participants. Unam American. Yes, I did call it that because a number of us fintech competitors to that European company called A uh would love to have been part of that first group of competitors. But because of the way that that fed now is structured. Uh, it basically a fintech in Europe can go, which is what a was. They went and got a bank charter and back doored into a Fed Master account. So there was a way for a European fintech to, to beat the American fintech to the punch and that is not right. And Heimer that next thing, you know, they're gonna start detonating atomic bombs. Oh, man, you're the Europeans. Every, every time I go to Europe, I just, you know, you understand the history. They just, uh, unfortunately end up in wars with each other, um, uh, every 100 years or so. And, yeah. Yeah. Yeah. Yeah, less than that and that. Yeah, I know. But, but yeah, the point, the point is there are a lot of legitimate eligible applicants who are being held out, kept out by the fed unlawfully while you've got a European fintech. That because it's easier for a European fintech to get a bank charter than it is for American fintech to get bank charters here. And they were able to get a bank, a bank charter and back door into a Fed master account. I'm not, I'm not challenging their eligibility. They're eligible. The point is that the FED set up a system that, that essentially creates an incentive for American companies to go offshore boy in the crypto industry. We have been feeling that but it's wrong and somebody needs to stand up and say it. Caitlin. Thank you. Very much for joining the show this morning. It's always a pleasure having you on. Yeah, my pleasure. Good to see you. Sorry for the technical glitch. Not sure what happened there. Thank you. All good. All right. That was the custodian bank founder and Ceo Kaitlyn won.

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