Wyoming-Based Custodia Brings Secure Bitcoin Storage To Wyoming, Other States

Bitcoin will never die. That’s the bet Caitlin Long is making with her Wyoming-based digital asset bank, which has just announced that it can now safely store bitcoin assets.

Renée Jean

November 21, 20236 min read

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Bitcoin will never die. That’s the bet Caitlin Long is making with her Wyoming-based digital asset bank, which has just announced that it can now safely store bitcoin assets.

It’s called custody in crypto circles, but it just means that an organization securely holds the digital key that opens a digital asset such as bitcoin, which many in this sector see as the equivalent of gold, just in a digital format that’s more secure and easier to move.

“It doesn’t matter what people think about (bitcoin) honestly,” Long told Cowboy State Daily. “It’s not going to die. Regulators in Washington, D.C., had clearly hoped they would be able to kill it, but they have failed.”

Long has seen several signs recently that the regulatory door is starting to, be forced open, at least a crack, by that reality.

“The Fed, in August, announced that it has a new, novel activity supervision program,” Long said. “So, it went from saying essentially, ‘Hell no’ in January to in August saying there’s a novel activity supervision program being set up, and it’s going to reach out to the tech industry fintechs, academics and the banking industry for help.”

Concurrent with that, the Security and Exchange Commission’s court losses have been piling up when it comes to cryptocurrency assets. In the most recent loss, courts rejected the federal regulator’s reasoning for blocking Grayscale’s giant bitcoin trust from converting to an exchange-traded fund, pointing to what it said were inconsistencies in its treatment of exchange-traded funds (ETFs) tied to bitcoin derivatives. Grayscale’s proposed product is to be built on actual bitcoin.

A more significant defeat before that case was the rejection of an oft-repeated position by the SEC that basically all cryptocurrencies are securities. That had been central to the federal regulator’s case against Ripple’s XRP cryptocurrency.

A Safe Way To Custody Bitcoin

Custodia Bank’s first offering was U.S. dollar deposits, including Fedwire Funds and ACH services, working through a partner bank, which was announced earlier this year.

Bitcoin custody, though, has long been Custodia’s reason for being. Long is quick to advocate self-custody for people owning bitcoin, but businesses can’t really do that. SEC laws don’t allow asset managers to both manage and provide custody services for client assets. As a result, investment fiduciaries typically use third-party custodians for all asset types as a matter of routine, even if it’s not a security.

Long believes that has created a window of opportunity for a safe, secure bitcoin custody service.

“We have built our own custom platform without relying on third-party integrations,” she said. “That’s the safe way to do bitcoin custody.”

Several high-profile failures at other companies have been caused by piecing together third-party infrastructure, Long said.

Third-party infrastructure “is one of the things that bank regulators don’t like,” she said. “Because third parties can be security holes. So, if you’re doing Bitcoin custody, you really do need to build your own platform, which is what we did.”

While Custodia will be able to convert bitcoin to U.S. dollars, Long is quick to stress that the bank is not serving as an exchange. Down the line, one of the services Custodia is working to offer is connection to entities that are exchanges.

“We believe from a control basis that that’s the right approach,” she said. “It clearly was dangerous for exchanges, custodians and money managers all to be the same legal entity. That’s part of the fraud that we’ve seen in this industry.”

Chief among the most recent examples of that danger is the FTX crytpocurrency exchange, whose spectacular failure has stoked widespread mistrust in the cryptocurrency industry, leading to a regulatory crackdown.

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First To The Table

Custodia’s announcement makes it the first of Wyoming’s Special Purpose Depository Institutions to provide live, digital asset management.

“Kraken applied before we did and got their SPDI charter before we did,” Long told Cowboy State Daily. “And of course, they’ve been operating as an exchange globally for almost a decade, but their Wyoming SPDI bank, to my understanding, is not operating yet.

“So yes, Custodia is the first of the Wyoming legal entities that got bitcoin custody up and running, and we’re actually the first of the Wyoming legal entities that got U.S. dollar services up and running as well.”

The bank doesn’t solely operate in Wyoming, however. It has branches operating as Custodia Bank in California, Colorado, D.C., Florida, Indiana, Kansas, Maryland, Massachusetts, Missouri, New Hampshire, Puerto Rico, South Carolina and Vermont.

It’s operating as Custodia Digital Services in Alaska, Alabama, Georgia, Minnesota, Montana, North Dakota, Nebraska, Pennsylvania, Rhode Island, Texas, Utah, Virginia, West Virgina and Washington.

The arrival of bitcoin custody has been a long time coming for Custodia, which has survived significant obstacles along the way.

Earlier this year, the Federal Reserve rejected Custodia’s application for a master account in an 86-page order which, aside from the eye-popping length, contained several new policy statements. Taken together, those statements appear to be rejecting Wyoming’s state charter for digital asset banks in general.

Custodia has filed a lawsuit over the handling of its application for a master account. Wyoming, meanwhile, tried to join the suit, although a judge rejected it.

The case is set for a bench trial in April after the Federal Reserve tried and failed three times to get the case tossed out.


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Renée Jean can be reached at renee@cowboystatedaily.com.

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Renée Jean

Business and Tourism Reporter