The U.S. District Court for the District of Wyoming recently dismissed Custodia Bank’s request for a Federal Reserve master account, which is essential for accessing the Fed’s payment systems. Custodia Bank, a digital asset specialist, has been pursuing a master account since 2020 to offer custodial services for crypto-assets. However, the Federal Reserve rejected the application citing concerns about Custodia’s involvement in the cryptocurrency sector.

In January 2023, regulators expressed skepticism about the cryptocurrency sector following incidents such as Celsius crashing, Luna and TerraUSD collapsing, and FTX going bankrupt. As a result, the Federal Reserve denied Custodia’s application, prompting the bank to sue the Federal Reserve, alleging violations of the Administrative Procedures Act.

In a ruling on March 29, Chief Judge Scott Skavdahl sided with the Federal Reserve, dismissing Custodia’s claims. The judge emphasized that granting master accounts solely based on state chartering laws could pose risks to the financial system. This decision underscores the challenges faced by blockchain-based financial institutions like Custodia, which is a Special Purpose Depository Institution in Wyoming.

Despite the setback, Custodia Bank remains committed to its vision of creating a safe, tech-enabled bank. The ruling comes amid legislative efforts in Wyoming to support blockchain-based businesses, including a recent bill to regulate decentralized autonomous organizations. Custodia Bank is reviewing the court’s decision and considering all options, including an appeal.

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