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CHEYENNE, Wyo. (AP) — The Federal Reserve Board has rejected a cryptocurrency bank of Wyoming’s application to join the Federal Reserve, officials said Friday, hampering the crypto industry’s attempts to gain acceptance into the mainstream U.S. banking system.

Many in the crypto space look to Cheyenne-based Custodia Bank’s more than 2-year-old app as a byword for cryptobanking. Approval would mean access to Federal Reserve services, including its electronic payments system.

The rejection adds to doubts about the viability of cryptobanking, particularly in Wyoming, a state that has sought to become a cryptobanking hub. banking, exchange and mining.

Custodia’s business model and focus on crypto presented “significant security and stability risks” to depositors, the Federal Reserve Board said in a statement.

“The board has made clear in the past that such crypto activity is likely not consistent with safe and sound banking practices,” it added.

The board also expressed doubt about Custodia’s ability to prevent money laundering and terrorist financing through crypto.

Last year, Custodia sued the Federal Reserve Board and the Federal Reserve Bank of Kansas City in federal court in Wyoming, accusing them of taking an unreasonably long time. In a statement on Friday, the company said it was “surprised and disappointed” by the rejection and vowed to continue the litigation.

“Custodia has offered a safe, federally regulated, solvent alternative to the unscrupulous crypto speculators and cryptos who have infiltrated the US banking system, with disastrous results for some banks. Custodia actively pursued federal regulation, exceeding all requirements applicable to traditional banks,” CEO Caitlin Long said in the statement.

Wyoming has passed many crypto- and blockchain-friendly laws and regulations in recent years, the electronic ledgers on which Bitcoin, Etherium and other cryptocurrencies operate. One new law allows state-approved crypto banks, called special purpose depository institutions.

Wyoming has hired four such crypto banks, called SPDI’s or “speedies,” including Custodia. They showed little public activity while the Custodia application was pending.



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