Custodia Bank, a crypto-friendly bank, recently announced the official launch of its Bitcoin custody platform. The platform is now available to customers in select U.S. states. The bank, formerly known as Avanti Financial Group, made the announcement on X (formerly Twitter) on November 7. The dedicated platform is designed to cater to Bitcoin custody services for businesses such as fiduciaries, investment advisers, fund managers, and corporate treasurers.
Founded in 2020 by Caitlin Long, a former managing director at Morgan Stanley, Custodia Bank is based in Cheyenne, Wyoming. The bank’s mission is to facilitate the integration of digital assets with the U.S. dollar payment system and provide digital asset custodial services. In August, the bank revealed plans to accept dollar deposits with a focus on serving U.S. business customers. Additionally, it hinted at the forthcoming launch of its Bitcoin custody services.
Regulatory Clearance and Platform Features
Custodia Bank has obtained regulatory clearance from the Wyoming Division of Banking to provide Bitcoin custody services. The platform offers segregated custody accounts through its custom-built Bitcoin custody platform. It combines Bitcoin custody with U.S. dollar services in a single, user-friendly platform, aiming to simplify operations and minimize risks.
The bank’s special-purpose depository institution charter under Wyoming’s crypto-friendly laws, passed in 2019, positions Custodia Bank as one of the pioneering institutions to receive this status. Operating as a non-lending institution, Custodia Bank focuses primarily on Bitcoin custody. During the development of its Bitcoin custody platform, the bank expressed gratitude to those who provided valuable feedback, stating, “Since we built our Bitcoin custody platform in-house, we’re especially grateful to those willing to help us by providing user feedback.”
Challenges and Regulatory Pressure
The official launch of Custodia Bank’s Bitcoin custody platform in 2020 comes at a time when the cryptocurrency industry is facing increased scrutiny and regulatory pressure due to high-profile scandals in the digital asset sector. Despite these challenges, the bank emphasizes its “regional bank-style” risk management program and its commitment to becoming a regulated bank.
Custodia Bank is currently pursuing a lawsuit against the Federal Reserve and the Federal Reserve Bank of Kansas City. The lawsuit is in response to the “unlawful delay” of its request to join the central bank’s payments system, which the bank considers vital for its effective operation. The Federal Reserve had initially rejected Custodia’s application, citing significant safety and soundness concerns. The Kansas City Fed followed suit by rejecting the bank’s request for a Fed master account.
In a comprehensive report issued in March 2023, the Federal Reserve’s board explained that its decision to reject Custodia’s application was driven by concerns regarding banks heavily involved in crypto-related activities. Despite Custodia Bank’s reported commencement of business operations in August 2023, the Federal Reserve has hindered many aspects of its proposed business model.
