Caitlin Long, the CEO of Custodia Bank and one of the most respected voices in the crypto banking sector, has launched a sharp critique of the U.S. Federal Reserve, alleging that it continues to undermine open crypto innovation while quietly building an advantage for traditional banks. Long’s statements, delivered through a detailed thread on X (formerly Twitter) on April 27, reveal how the Fed’s selective regulatory rollback may be much less of a victory for crypto than many headlines suggest.

Earlier this month, the Federal Reserve announced the withdrawal of several major pieces of guidance that had restricted banks’ involvement in cryptocurrency activities. Among the rules rescinded were requirements for banks to notify the Fed before engaging with crypto, statements warning banks about the risks of dealing with crypto clients, and policies limiting state banks from issuing stablecoins. The move, coming under the Trump administration’s new crypto-friendly stance, was initially celebrated by many in the digital asset space as a green light for renewed innovation.

However, according to Long, this optimism may be premature—or even dangerously misguided. She pointed out that while four anti-crypto policies were withdrawn, one crucial rule remained firmly in place. This rule prevents banks from holding even small amounts of cryptocurrency needed for operational functions, such as paying gas fees for blockchain transactions. Additionally, banks are still forbidden from issuing stablecoins on public, permissionless networks like Ethereum. Instead, the Federal Reserve continues to promote the use of private blockchains controlled exclusively by large financial institutions.

Long argues that this regulatory framework grants a significant competitive edge to big banks, allowing them to experiment with stablecoin issuance on closed systems while cutting smaller players and decentralized projects out of the race. This preference for private blockchains risks concentrating even more financial power within the traditional banking sector—directly contradicting the decentralized ethos at the heart of crypto.

The operational impact of these lingering restrictions is profound. Banks attempting to offer crypto custody services face significant hurdles. Because they are prohibited from holding extra crypto for gas fee variations, even small fluctuations can cause transactions to fail. This makes providing custody services at scale extremely difficult, discouraging banks from entering the digital asset space despite outward regulatory “support.”

Long’s commentary highlights the strategic nature of the Federal Reserve’s messaging. She noted that the Fed’s press release announcing the regulatory rollback listed all rescinded policies while conspicuously avoiding any mention of the guidance it left in place. According to her, this selective presentation fooled even seasoned policymakers and observers, leading to widespread misinterpretation of the Fed’s real intentions.

Her concerns are echoed in Washington, where Senator Cynthia Lummis—one of the crypto industry’s strongest political allies—warned against celebrating too soon. In her own remarks, Lummis pointed out that the Federal Reserve continues to rely on “reputational risk” standards to subtly discourage banks from engaging with Bitcoin and digital assets. She specifically called out Section 9(13) of the Fed’s internal policies, which labels Bitcoin and other cryptocurrencies as “unsafe and unsound,” and remains firmly intact despite the recent rollbacks.

Beyond the Fed’s current restrictions, Long and Lummis emphasized the broader pattern: many of the architects behind the aggressive anti-crypto policies of the past, including the controversial Operation Chokepoint 2.0, remain in positions of power. This continuity suggests that without sustained political pressure, the underlying hostility toward open crypto markets could persist under the surface, even as surface-level concessions are made.

The broader implications are significant. If federal regulators continue to favor private blockchain development by major banks while discouraging public blockchain innovation, the U.S. risks losing its leadership position in the global digital economy. Meanwhile, innovation will likely continue to migrate toward more decentralized models outside of the traditional banking system, such as DeFi platforms like Uniswap, Aave, and PancakeSwap, where users control their own assets.

For now, the battle for the future of digital finance in America remains ongoing. Caitlin Long’s warnings serve as a reminder that real progress for crypto in the U.S. will require more than public relations gestures—it will demand genuine regulatory reform that levels the playing field for all participants, not just the legacy financial giants.