GM, Joanna here.

Competition is about to heat up in the crypto custody business as the US markets regulator opens the door to large investment banks.

But Custodia Bank CEO Caitlin Long says crypto-native firms have an edge — they’re much better at blockchain. 

I spoke to Long about reports that the Securities and Exchange Commission is allowing unnamed banking giants to sidestep a controversial piece of SEC staff guidance, known as SAB 121.

SEC Chair Gary Gensler is “flipping the bird to the crypto industry,” Long told me.

The reports came out just as lawmakers in the House of Representatives failed to override President Joe Biden’s veto of a resolution to overturn SAB 121.

Gensler is “saying, ‘I’m going to let your big bank enemies through first — this is how I’m getting you back’,’' Long said. 

“That’s how everyone in the crypto industry is receiving it.” 

What is SAB 121?: 

• SAB 121 effectively makes holding crypto on behalf of others expensive for banks. 

• That’s given crypto natives like Coinbase the opportunity to corner the market on large-scale crypto custody. 

• Congress passed a resolution to overturn SAB 121, but Biden vetoed it. The crypto industry saw as a sign that the administration is not, in fact, warming to it. 

I’ve been somewhat mystified by the crypto industry’s support for overturning SAB 121.

If the SEC opens the door for well-resourced and experienced firms like BNY, State Street, and Nasdaq — all of which have built crypto custody offerings — surely, that’s a threat to crypto natives. 

Long, founder of Wyoming state-chartered bank Custodia and a Morgan Stanley alumna, said crypto custodians can more than hold their own even with the threat of large bank rivals. 

That’s because banks are bad at blockchain. 

These giant institutions are built on creaking infrastructure accumulated over decades, with databases written in 60-year-old programming languages. 

They have looked to solutions like cloud computing and blockchain to fix this inefficient architecture, but face a number of issues in implementing new tech.

Among these — many good engineers don’t want to work for banks. 

They prefer tech companies, which pay better, offer exciting work, and are less bureaucratic.

Large banks that built crypto custody services “didn’t hire Bitcoin core developers, they tried to retrain existing engineers,” Long told me.

“They also tried to cobble together infrastructure players rather than building their own custody,” she said.

On the other hand, crypto natives like Coinbase, Kraken, and Custodia built their own systems, Long said. 

That’s where these businesses will compete — on talent and native knowledge, she said. 

“There is this huge technology gap. You can’t just paper over that,” Long said. 

Look out for my full interview with Long on DL News. 

Reach out to me at [email protected].

ICYMI

• A Dutch court denied a bail application from Alexey Pertsev, the Tornado Cash developer convicted of money laundering in May.

• The US Securities and Exchange Commission dropped a three-year investigation into the Stacks blockchain and its developer Hiro Systems.

• The UK Law Commission published a report on decentralised autonomous organisations. The commission found there’s no need for the UK to develop a specific legal structure for DAOs.

Story of the Week

A firm linked to Cambodia’s ruling family is running an $11bn crypto scam operation

Crypto-connected romance scams go all the way to the top in Cambodia. That’s according to a DL News investigation and a report from analytics firm Elliptic, which linked marketplace Huione Guarantee — widely used by scam operators in Southeast Asia — to a cousin of Cambodian Prime Minister Hun Manet.

Post of the Week

Comment of the Week

DL News is an independent news organisation that provides original, in-depth reporting on the largely misunderstood world of cryptocurrency and decentralised finance. From original stories to investigations, our journalism is accurate, honest and responsible.

Forwarded by a friend? subscribe here.