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Caitlin Long on Why Crypto Natives Will Win the Custody Market — With or Without Gary Gensler – DL News
- Media reports say the SEC is allowing certain large banks to bypass guidelines on holding crypto assets.
- This threatens native cryptocurrency custody providers.
- But cryptocurrencies can compete on talent and technological know-how, says the founder and CEO of Custodia Bank.
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Competition is about to heat up in the cryptocurrency custody business as the US markets regulator opens the door to big investment banks.
But Custodia Bank founder and CEO Caitlin Long says crypto-native companies have an advantage: They’re much better at blockchain.
I spoke to Long about reports that the Securities and Exchange Commission is allowing unnamed banking giants to bypass a controversial piece from SEC staff guidance, known as SAB 121.
SEC Chairman Gary Gensler is “giving the cryptocurrency industry the middle finger,” Long told me.
The reports came as House lawmakers failed to override President Joe Biden’s veto of a resolution to repeal SAB 121.
Gensler is “saying, ‘I’m going to let your big banking enemies go first — that’s how I’m going to bring you back,’” Long said.
“This is how everyone in the crypto industry is getting it.”
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What is SAB 121?:
- SAB 121 effectively makes holding cryptocurrencies on behalf of third parties expensive for banks.
- This has given crypto-native companies like Coinbase the opportunity to corner the cryptocurrency custody market on a large scale.
- Congress passed a resolution to repeal SAB 121, but Biden vetoed it. The crypto industry saw this as a sign that the administration is not, in fact, warming up to it.
I’ve been somewhat mystified for the support of the cryptocurrency industry to overturn SAB 121.
If the SEC opens the door to experienced and well-resourced firms like BNY, State Street and Nasdaq — all of which have created crypto custody offerings — it will certainly pose a threat to crypto natives.
Long, founder of Wyoming-based Custodia Bank and a Morgan Stanley alumnus, said cryptocurrency custodians can hold their own even in the face of threats from rival big banks.
Creaking technology
This is because banks are bad at blockchain.
These gigantic institutions are built on a precarious 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 they face a number of problems in implementing new technologies.
Among them, many good engineers do not want to work for banks.
They prefer technology companies, which pay better, offer interesting work and are less bureaucratic.
Big banks that have built cryptocurrency custody services “didn’t hire core Bitcoin developers, they tried to retrain existing engineers,” Long told me.
“They also tried to lump infrastructure players together rather than build their own custodian,” she said.
On the other hand, native crypto companies like Coinbase, Kraken and Custodia have built their own systems, Long said.
That’s where these companies will compete — on talent and indigenous knowledge, she said.
“There’s a huge technology gap. You can’t just hide that,” Long said.
Stay tuned for my full interview with Long on DL News. Contact me at joanna@dlnews.com.