YouSaid · the spoken record

Caitlin Long

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2024-01-24
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2024-01-24
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  1. “Sorry, I had to get that off my chest. I'm going to quote Paul Gral had an incredible tweet in the face of all the SEC stuff relating to the ETF rollout. I am biting my tongue so hard in the meeting. I'll leave it at that.”

    2024-01-24 · We Study Billionaires · BTC166: Bitcoin Custody For Institutions w/ Caitlin Long and Wes Knobel (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  2. “We are operating in spite of the fact we don't have a Fed master account. That's really important to know. We are operating. That did not kill us. But now over to you”

    2024-01-24 · We Study Billionaires · BTC166: Bitcoin Custody For Institutions w/ Caitlin Long and Wes Knobel (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  3. “I guess it's kind of funny. It's like the SEC putting up SAB 121 The big banks out of custody and then Coinbase and Fidelity get all the custody business. I'm quite sure the SEC is not happy about that. They can't be happy about that.”

    2024-01-24 · We Study Billionaires · BTC166: Bitcoin Custody For Institutions w/ Caitlin Long and Wes Knobel (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  4. “Is over whether over the Federal Reserve's denial of custodia's master account, custodia also applied to become a Federal Reserve member bank, which would have made us federally regulated by the Fed. And we were denied.”

    2024-01-24 · We Study Billionaires · BTC166: Bitcoin Custody For Institutions w/ Caitlin Long and Wes Knobel (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  5. “And they were able to replace that bank account with Cross River pretty quickly. And some of the other companies that were US based ended up going offshore and focusing offshore because they couldn't do that. And so Coinbase then became the 10-ton guerrilla, right? What was the distinguishing feature? It was that 10 years ago they were able, even though they lost a bank relationship, to replace it quickly. Whereas others couldn't. And so this has been a perpetual issue in the industry for a long time. So long story short, here's where I'm going. Some folks would look at custodia not being FDIC insured as a feature, not a bug because it means the FDIC does not have jurisdiction over us. So we tried. We tried to become federally regulated and we're rebuffed. So now you're asking a really interesting question peering into the future. Is that going to make a difference? It very much depends, right? Our lawsuit, as you know.”

    2024-01-24 · We Study Billionaires · BTC166: Bitcoin Custody For Institutions w/ Caitlin Long and Wes Knobel (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  6. “Wyoming designed the special purpose depository institution charter back in 2017 precisely because we knew that Operation Chokepoint 1.0 had caused a lot of legitimate crypto companies to lose their bank relationships. And if you go back far enough actually in crypto history, one of the reasons that Coinbase broke out from a number of the early payment platforms, which is what it was back in 2013-ish, one of the reasons they broke out is because they lost their bank account.”

    2024-01-24 · We Study Billionaires · BTC166: Bitcoin Custody For Institutions w/ Caitlin Long and Wes Knobel (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  7. “Well, I mean, the reality is we are, I'm sure, in the United States. Okay. So if you are worried about that, obviously as a US domiciled corporation, we are a state of Wyoming corporation and a US taxpayer. Yes, if they use the tax code to effectively effect a 6102 confiscation of gold again, and it happens to be the confiscation of Bitcoin this time. Yes, I mean, this is one of the issues of using a third-party counterparty that is regulated, a third-party counterparty that is regulated has to comply with the laws, whether you agree with them or not, you have to comply with the laws. And that is what your charter requires you to do. Now, you're asking an interesting question that relates to the fact that we're a state charter bank. It is public information that custodia applied to become FDIC insured. And the answer was essentially hell no. And we knew that. We knew that, frankly.”

    2024-01-24 · We Study Billionaires · BTC166: Bitcoin Custody For Institutions w/ Caitlin Long and Wes Knobel (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  8. “The ETF market, of course, is a big one, but we've got other niche markets. Some of our customers are looking at us as a diversification. This is something new. It used to be there was really only one or two custodians that were deemed secure. That's no longer true. There are others as well. But there's a desire because folks are starting to understand that there are differences in the custody architecture and operations. They want to diversify. And so some folks are starting to diversify away into us”

    2024-01-24 · We Study Billionaires · BTC166: Bitcoin Custody For Institutions w/ Caitlin Long and Wes Knobel (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  9. “We did have one of the ETF managers reach out to us, and a lot of it is timing. And this is one of the unfortunate realities of what happened with custodia vis- ⁇-vis the Fed. Because we got our certificate of authority to operate in September of 2022. And then after the denial and the disparagement, it took us longer. I'll leave it at that. A lot will eventually come out about what happened in that interim period, especially if there's ever a damages portion of our trial. But obviously we got delayed. And unfortunately, we had a lot of, we had to pull engineers off the custody project and product people off the custody project to do a lot of other things that needed to that we needed to rebuild during that timeframe. So long story short, yeah, it took us longer. And here we are though. We survived it. A lot of companies that were trying to go down the same path as custodia did not survive it. But when push came to shove, the reality is we're too new. And it is true that the other custodians have been around for several years. And that makes a difference in the securities industry. But we'll get there. I'm not worried about it. We've got other niche markets.”

    2024-01-24 · We Study Billionaires · BTC166: Bitcoin Custody For Institutions w/ Caitlin Long and Wes Knobel (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  10. “Huff likes to talk about it, right? The custody UTXOs, others will custody omnibus Bitcoin. We custody the actual UTXOs. There's your difference.”

    2024-01-24 · We Study Billionaires · BTC166: Bitcoin Custody For Institutions w/ Caitlin Long and Wes Knobel (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  11. “They would have to hold, say, 8% of every dollar under custody in capital. It starts to become extremely expensive, right? They have custody businesses. They're just not as big as they otherwise would be had the SEC not implemented SAP 121. So now you see where I'm going. Here's the funny thing. Coinbase is by far the biggest custodian of the Bitcoin ETFs. And it's a company the SEC was suing. Because of SAB 121, guess what? The crypto industry, namely Coinbase and Fidelity, are the custodians on the ETFs. That is, I'm sure, not what the SEC would have preferred.”

    2024-01-24 · We Study Billionaires · BTC166: Bitcoin Custody For Institutions w/ Caitlin Long and Wes Knobel (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  12. “And then the SEC implemented SAB 121 that said, oh, for Bitcoin, that's different than securities. Bitcoin custody has to, you have to put your assets on balance sheet, which means if you're a bank, it's going to attract a tier one capital charge. Well, it's only the SEC public filers that SAB 121 applies to. So here's the funny thing. I think the SEC looked at that as a firewall against the crypto industry and said, we're going to keep these big banks out of crypto. They're in it. It's just that they can't grow billions and billions and billions of dollars. So I don't even know if those big banks that are in custody even competed for the Bitcoin ETF custody because”

    2024-01-24 · We Study Billionaires · BTC166: Bitcoin Custody For Institutions w/ Caitlin Long and Wes Knobel (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  13. “Okay, so it started in receivership, but then it all ended up in federal bankruptcy court. And now there's a Chapter 11 process. We don't know what the haircut's going to end up being. But there is a perfect example of where a trust company ended up not being able to deliver on an actual bailment. This is the fundamental reason why in the securities industry, the custodians are banks almost entirely banks because the bankruptcy treatment is really clear. Now, here's the funny thing. I'll end with this and then we can get into the structure of custodia's arrangement because this legal structure that we're describing had a big impact on how we designed our technology. So I'll kick it over to Wes in a minute. But here's the funny thing, Preston, you'll laugh at this. I haven't talked about this publicly yet. I sit back and look at the fact that we had some big banks like Bank of New York Mellon announced that they were getting into Bitcoin custody, right?”

    2024-01-24 · We Study Billionaires · BTC166: Bitcoin Custody For Institutions w/ Caitlin Long and Wes Knobel (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  14. “So, the Committee of Custody Customers agreed to take 72 cents on the dollar just so that they wouldn't have to wait years through the bankruptcy process. What we saw in the case of Prime Trust is that the State Charter Trust Company was a Nevada trust company. They started down a state receivership which is generally going to be more favorable to the customers than bankruptcy. Federal bankruptcy court is designed to maximize the assets for the estate. It's not designed to maximize the assets to the customers. Big difference”

    2024-01-24 · We Study Billionaires · BTC166: Bitcoin Custody For Institutions w/ Caitlin Long and Wes Knobel (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  15. “A trust company structure. Custodia is a bank. There is a difference. And the biggest difference, there are several actually, but the biggest one is that banks cannot be dragged into federal bankruptcy court. They are expressly excluded from federal bankruptcy court. What is the significance of that? We saw it in prime trust. We saw it in the Celsius bankruptcy. Celsius was not a trust company, but Prime Trust was and is. And what happens is in the Celsius, that's a perfect example, even though they weren't a trust company. The judge said there's a constructive bailment of the custody assets. So those belong legally to the custody customers. But because they were intermingled in that legal entity with non-custody customers, there were preferences and clawbacks that had to be cleared before the custody customers could take their money.”

    2024-01-24 · We Study Billionaires · BTC166: Bitcoin Custody For Institutions w/ Caitlin Long and Wes Knobel (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  16. “There's a segregation of fund management and fund custody. And we are just fun custodians in that regard. Bailman, what is a bailment? It's valet parking. It's a coach check. You don't turn over legal title to the custodian when you park your car in a valley, parking garage, or when you turn in a nice, let's assume you have a fur coat. You're not turning over legal title to the restaurant when you check it at the code check. All you're doing is giving temporary possession of those assets. And that is a very important legal framework that the Wyoming Special Purpose Depository Institutions recognize. Now, you point out that the custodians, there are a couple of different ones. What do they all have in common? It's mostly Coinbase, but of course Fidelity, and there are a couple of others as well that are smaller, that are among the custodian list. Every one of them is used.”

    2024-01-24 · We Study Billionaires · BTC166: Bitcoin Custody For Institutions w/ Caitlin Long and Wes Knobel (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  17. “Yeah, let me start and then hand it to Wes. Drew Hinke says it has his pinned tweet something like Not Your Legal Title, Not Your Coins. And it is a play on Not Your Keys, Not Your Coins. Wes and I are both adamant that unless you need to use a third-party custodian, you should not. So you won't see a lot of custodians say that. Don't do business with us, right? But we're here because there are a number of businesses, fiduciary businesses, anyone subject to the investment advisors act or the investment company act that has a requirement that an asset manager store their custodia, have a third party custodian hold the assets for them. That goes back to a lot of fraud that happened in the mutual fund industry in the 1930s.”

    2024-01-24 · We Study Billionaires · BTC166: Bitcoin Custody For Institutions w/ Caitlin Long and Wes Knobel (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT

  18. “Right. Wes and I are both at custodia bank. We announced in November that we had launched Bitcoin custody in October. We are live. We have taken our first very substantial customer in-house. Wes, I can brag about comes from the baking industry. You're going to hear that as a theme here. We are Bitcoiners and bankers at custodia. We were able to hire Wes from Silvergate. He has an applied math background. He is a cryptographer. And he also went to Pacific Coast Banking School, spent 12 years in the banking industry, and was in charge of operations for Silvergate's digital asset business. So this was the margin calls on the Bitcoin-backed loans, as well as got involved with Silvergate's project on the stablecoin, which ultimately didn't take off. And we were able to grab Wes and he's our VP of Bitcoin custody. Those of you who are...”

    2024-01-24 · We Study Billionaires · BTC166: Bitcoin Custody For Institutions w/ Caitlin Long and Wes Knobel (Bitcoin Podcast) · IDENTIFIED FROM THE TRANSCRIPT