On January 31, prominent cryptocurrency advocate James Murphy revealed the US Federal Reserve's anti-crypto crackdown on cryptocurrency storage company Custodia Bank.
"Master account" takes forever to approve.
In a post on X (formerly on Twitter), James "Metalman" Murphy spoke about the alleged concerted effort by US government agencies to regulate cryptocurrencies, raising concerns in the crypto community.
According to a prominent cryptocurrency attorney, the US Securities and Exchange Commission (SEC) was not the only agency to file charges against cryptocurrency-backed companies. Federal Reserve Metalman was also involved in what was called "Operation Chokepon 2.0".
To support his claim, the blockchain advocate cited an ongoing case between Custodia Bank, a digital asset payment and deposit solutions firm, and the Federal Reserve Bank.
Ironically, Custodia Bank sued the Federal Reserve System for denying its "master account" application despite its parent bank's request to set up a Kansas branch.
As a registered depository institution in the state of Wyoming, Custodia Bank meets the requirements set forth by federal law to operate a "main account."
A "main account" is a financial company's bank account that the Federal Reserve System allows them to use to clear checks, money orders, and automatic clearing house (ACH) payments.
By design, master account approval takes 5-7 business days and is usually issued by federal or state registered depository institutions.
However, the protection bank application faces 20 months of uncertainty. Then eight months later, the cryptocurrency escrow company filed a lawsuit, which was dismissed.
MetaLawMan notes that the US SEC used a similar strategy in its regulatory filing against Coinbase.
Everything was rosy before the Federal Reserve failed
Operation Chokepoint 2.0 may sound new to many, but the term is used to describe a concerted effort by leading financial institutions to undermine the integrity and enforcement of digital assets in the United States.
That's certainly the case for Custodia Bank, as the cryptocurrency financial services firm received a glowing review from the Federal Reserve's Kansas branch.
Overall, Kansas City said the capital requirements to apply for a large account are "adequate." Risk management was found to have a "strong risk management practice" and management experience was impressive and "comprehensive".
But a later report from the DC branch suggested the opposite.
The Federal Reserve has expressed the need for a stronger capital requirement system and has recognized gaps in risk management.
In addition to insufficient liquidity, the management team indicated that it did not have enough banking experience to open large accounts.
Meanwhile, the Federal Reserve tried to convince the court to dismiss the case. In a ruling issued by the U.S. District Court for the District of Wyoming, Judge Scott Shodal denied the request.
The long approval period was unexpected and should have taken less time, he said.