Custodia Bank’s New Service
Custodia Bank recently announced the advent of their bitcoin custody service, a crucial step towards the company’s operations in servicing the space. As a Special Purpose Depository Institution, Custodia is unable to rehypothecate assets. Even US dollars on deposit are held in full reserve.
Bitcoiners often wax poetically about their disdain for the current system. The fractional reserve nature of banks allow for perpetual credit creation and monetary expansion. If Bitcoin companies choose to remain within that system, their success only makes it stronger.
There are however, risk that companies may not be fully taking into account. Operation Chokepoint 2.0 has been covered extensively in the Bitcoin space. In short, the government is alleged to have colluded with regulatory agencies to name the industry as a key risk to financial stability. In doing so, there may be an unofficial cap on the amount of bitcoin and crypto deposits that a bank is able to hold.
Recent “Crypto” Collapses Didn’t Help Bitcoin
The successes of Bitcoin companies strengthen the fractional reserve system, but they may also increase the likelihood of individuals being debanked. In the wake of the FTX collapse, companies soon found themselves without a bank as the rescuing banks refused to assume crypto company assets. As an alternative, Bitcoin companies may look to smaller regional banks in friendly areas, but in the event of a collapse they may be out of luck considering FDIC insurance only covers a quarter million.
Though the FDIC backstopped all losses in the most recent collapse, Janet Yellen has gone on record saying that those measures only apply to systemically important institutions. The valuation is subjective at best and opens companies up to an enormous amount of risk.
They Couldn’t Care Less
The fact of the matter is, these institutions do not want you to exist. Jamie Dimon, JPMorgan CEO, likes to remind us frequently just what big banks think about us. Custodia serves as a solution.
Don’t let your successes feed the monetary system you’re so desperately trying to fix. The Bitcoin community is about taking action and supporting our own. Bitcoin companies need to stand behind their values and take action to support Custodia lest their rally cries fall short of their ideals.
