Custodia's defeat may be the beginning of a greater victory.

Author: Eleanor Terrett Translator: Shan Ouba, Golden Finance

Objections may pave the way for a Supreme Court review, and the “streamlined master account” could become its breakthrough. This article will explore Custodia Bank's next steps following the Tenth Circuit Court of Appeals' support for the Federal Reserve's ruling on master accounts; additionally, it will outline key areas of focus in market structure, meetings, elections, and more this week.

Caitlin Long, CEO of Custodia, joined Crypto In America in July.

Last Friday, Custodia Bank faced a new setback in its long legal battle with the Federal Reserve over securing a master account.

The Tenth Circuit Court of Appeals upheld a ruling from the Wyoming District Court in a 2-1 vote — the Federal Reserve has full discretion to deny Custodia Bank access to its master account to use its payment system. Custodia Bank, based in Wyoming, primarily engages in cryptocurrency custody and other digital asset services.

The ruling states: “We believe that the explicit provisions of the relevant regulations grant the Federal Reserve discretion to reject applications for master account access from qualified entities; therefore, we dismiss Custodia Bank's attempt to legally restrict the Federal Reserve's 'discretion to refuse master account access' in order to maintain the security of the national financial system.”

Previously, the Federal Reserve Bank of Kansas City rejected Custodia's application for a master account in 2023. If granted a master account, the bank could have directly used the Federal Reserve's payment facilities, held reserves, and completed transaction settlements without relying on partner banks. Custodia's CEO Caitlin Long subsequently filed a lawsuit in the District Court of Wyoming, but the court upheld the Federal Reserve's position, prompting her to appeal to the Tenth Circuit Court of Appeals.

Despite losing the case, Custodia Bank still sees hope in Judge Timothy Tymkovich's dissenting opinion. This dissenting opinion is highly consistent with the “friend of the court” brief submitted by former Deputy Attorney General Paul Clement for this case, both arguing that the Federal Reserve's appointment process is unconstitutional and that its authority over main account approvals is unchecked.

Tymkovich wrote in the dissenting opinion: “I do not believe that the entire Federal Reserve system is unconstitutional… But if the Federal Reserve's independence is constitutionally valid only because of 'following the unique historical traditions of the First and Second Banks of the United States,' then the Federal Reserve should wisely avoid extending its power beyond historical limits. The Kansas City Federal Reserve Bank's refusal to provide Custodia with a master account effectively deprived it of its right to obtain essential services for its business, and such behavior should not be permitted.”

After the Tenth Circuit Court of Appeals made its ruling last Friday, Custodia Bank issued a statement on platform X, particularly emphasizing this dissenting opinion: “While we had originally hoped to win in the Tenth Circuit Court of Appeals, we obtained a second-best result—a strongly worded dissent. It raises serious questions about the constitutionality of the Federal Reserve…”

According to lawyers familiar with the case, this opposition, along with support from well-known Supreme Court attorneys like Paul Clement, may be substantial enough to prompt the U.S. Supreme Court to consider taking up the case and review whether the Federal Reserve's structure and the discretionary power over master account approvals are constitutional.

However, before seeking intervention from the Supreme Court, Custodia Bank has more recent options. The company stated that it is actively considering applying for “en banc review,” requesting the same panel of judges to reconsider the ruling results. In addition, Custodia can also apply for “full court review”—to be heard by all sitting judges of the Tenth Circuit Court of Appeals, rather than just the initial three-judge panel. Full court review is typically applicable in cases that “may establish significant precedent” or where the “panel's ruling is particularly significant.”

Custodia can also choose to reach a settlement with the Federal Reserve and withdraw the lawsuit, but the bank is likely to insist on obtaining a master account. Thanks to a new initiative from the Federal Reserve, this outcome is now more achievable than ever — the Federal Reserve may soon allow institutions that provide payment services to apply for a special type of master account.

Federal Reserve Governor Christopher Waller announced last month the so-called “streamlined master account,” which is a simplified version of the full master account designed to allow legally qualified cryptocurrency and fintech companies to access the central bank's payment system while controlling systemic risks.

Waller stated in an interview with “Crypto In America”: “We might consider institutions like Custodia and Kraken… The approval process will become simpler and faster, unlike in the past where it took six years and required going to court.”

If Custodia obtains a master account through settlement, this Wyoming bank will become the first cryptocurrency-related institution to acquire such qualification, thereby gaining a first-mover advantage. This will allow it to stand out among other cryptocurrency companies that may meet the Federal Reserve's “streamlined master account” application guidelines. Waller stated that these guidelines are still in the early stages and may take up to a year to finalize.

The future financial system infrastructure is being built on the Avalanche blockchain, with institutions such as Citigroup, JPMorgan, BlackRock, and Dinari all able to attest to this.

Key Focus Items for This Week

government shutdown

If the U.S. government shutdown continues past this Wednesday, it will exceed the 35-day shutdown record set during the Trump administration in 2018, becoming the longest government shutdown in U.S. history. Previously, a federal judge had ordered the government to use emergency funds to temporarily ensure the funding supply for the Supplemental Nutrition Assistance Program (SNAP), affecting approximately 4.2 million Americans who rely on this program, thus temporarily shielding them from impact. Last week, Trump urged the Senate to bypass the “lengthy debate” procedure and pass the government funding bill without Democratic support, but Senate Majority Leader John Thune (Republican, South Dakota) stated that they would still adhere to the procedure. This week, Congress will continue to vote, and Senate Democrats seem determined to “prevent the government from reopening until Republicans agree to extend the 'Obamacare' subsidies (covering over 20 million Americans),” while Republicans remain steadfast in their position. The House of Representatives is still in recess.

market structure

A new week means that there may be new developments in the progress of market structure-related legislation. Last week we reported that the Senate Agriculture Committee is about to release a bipartisan bill draft, and this situation remains unchanged for now. We will closely monitor whether the committee releases the bill text — reportedly, Committee Chairman John Boozman (Republican, Arkansas) has reached an agreement with Cory Booker (Democrat, New Jersey) and is currently finalizing some final terms. At the same time, we will also focus on the dynamics of the Senate Banking Committee, where bipartisan negotiations have resumed. All signs indicate that both chamber committees hope to complete the review process of the bill draft before the lawmakers' Thanksgiving recess. However, the Senate will be in recess next week for “Veterans Day”, so lawmakers have only the week of November 17 left to push forward — provided the government has restarted operations before then.

cryptocurrency conference

This week, New York will become the focal point of the global cryptocurrency sector.

1. The Ripple flagship conference Swell will be held from Tuesday to Wednesday at Hudson Yards, bringing together cryptocurrency, traditional finance, and Washington political figures. Keynote speakers include Nasdaq CEO Adena Friedman, Ripple CEO Brad Garlinghouse, Executive Director of the White House Cryptocurrency Council Patrick Witt, and Congressman Ritchie Torres (Democrat, New York).
2. The ChainLink conference, SmartCon, is being held at the Chelsea Metropolitan Exhibition Center, not far south of the Swell venue, and will continue until Wednesday. Leaders from organizations such as SWIFT, JPMorgan, Mastercard, Aave, and Consensys will be in attendance, with core topics including on-chain activities, compliance, identity verification, and emerging use cases.