The cryptocurrency bank Custodia, headquartered in Wyoming, is reportedly considering additional layoffs to prepare for the Biden administration's continued regulatory scrutiny. This decision comes as the cryptocurrency sector faces unprecedented challenges, including bank service disruptions and increasing pressure from US regulatory agencies.
Meanwhile, cryptocurrency market participants are hoping for a more favorable regulatory environment amid expectations of policy changes under the Donald Trump administration.
Custodia Bank Plans Additional Layoffs Amid Regulatory Pressure
Custodia Bank may carry out additional layoffs after reducing its staff by 25% in August. This is because the bank focused on digital assets continues to devote resources to a lawsuit with the Federal Reserve (Fed) from last year. The Fed did not grant this bank a master account.
"Fox Business has learned that the cryptocurrency bank Custodia, headquartered in Wyoming, will implement additional layoffs to preserve capital," Fox Business correspondent Eleanor Terrett reported.
The bank did not immediately respond to a request for comment on the non-crypto-related layoffs. In early 2023, Custodia Bank was denied a master account, which is an account that can access the Fed's liquidity facilities. The lawsuit is challenging this denial.
Custodia Bank is trying to conserve capital as it continues its legal battle with the Fed. During the last layoffs three months ago, the company's founder and CEO, Caitlin Long, described the reduction as a "right-sizing." She said it was necessary to maintain operations while preserving capital during the lawsuit with the Fed.
Long also mentioned the Biden administration's ongoing crackdown on digital assets, stating that efforts may continue "until Operation Choke Point 2.0 is over." Operation Choke Point was an Obama-era effort that blocked high-risk industries, including payday lending, gambling, and firearms, from accessing banking services.
"I'm very proud of the Custodia team, the services we've built for our customers, and our resilience despite repeated bank service disruptions that are not our fault. I'm especially grateful to Custodia's customers and shareholders who have helped us fight to preserve the continuity of banking access for the law-abiding US crypto industry," Terrett added, quoting Long.
Notably, the oral arguments in the lawsuit are scheduled for January 21, the day after Donald Trump's recent victory.
Will the Environment Change Under Trump?
Custodia is not alone in fighting regulatory pressure. The cryptocurrency industry as a whole has faced recent regulatory challenges. Prominent companies like ConsenSys have also announced significant layoffs recently.
As reported by BeInCrypto in late October, the blockchain software company that developed the Ethereum infrastructure tool Metamask said it would reduce its staff by 20%. CEO Joe Lubin cited the increasing pressure from the US Securities and Exchange Commission (SEC) and the uncertainty in the regulatory space as reasons.
"The broad macroeconomic conditions of the past year and ongoing regulatory uncertainty have created challenges across our industry, particularly for US-based companies," Lubin shared.
Meanwhile, the Biden administration has been accused of taking an increasingly aggressive stance towards the cryptocurrency industry. These accusations include the implementation of strict banking restrictions and the disruption of banking services. However, Trump's recent victory and the upcoming inauguration have reignited hopes for a more supportive regulatory environment within the cryptocurrency sector.
This hope hinges on the delivery of Trump's cryptocurrency blueprint. Experts believe that Trump's pro-business stance could ease regulatory pressure on cryptocurrencies and revive the industry.
Coinbase CEO Brian Armstrong also expressed an optimistic view on the potential change in regulatory attitude. Armstrong recently called on the next SEC chair to "drop frivolous cases" against cryptocurrency companies and issue a public apology. He criticized the current SEC composition for excessive enforcement, singling out Gary Gensler.
"The next SEC chair should withdraw all frivolous cases and apologize to the American people. This won't undo the harm done to the country, but it would start the process of restoring trust in the SEC as an institution," Armstrong posted.
Nevertheless, Custodia's ongoing lawsuit remains a symbol of the fight for the legitimacy and fair treatment of the cryptocurrency industry within the financial sector. While the short-term outlook for the industry remains uncertain, there is cautious optimism that the incoming Trump administration may provide relief for the struggling cryptocurrency companies.
