Over the past century, the number of American banks has significantly decreased, dropping from 30,000 banks in 1921 to 4,997 U.S. banks in 2021, according to data from the Federal Reserve. Recently, the U.S. central bank denied Custodia Bank of Wyoming, a financial institution that holds $1.08 for every dollar deposited by customers. Although there appears to be a need for such a bank after the collapse of three major U.S. banks, the Federal Reserve stated that board members have “heightened concerns” about institutions with plans to focus solely on a narrow sector.

The Fed’s Explanation on Why it Denied Custodia Bank Highlights Adversity to Crypto-Asset Sector

Shortly before the collapse of Silvergate Bank, Silicon Valley Bank, and Signature Bank, the Cheyenne, Wyoming-based financial institution, Custodia Bank, was denied membership in the Federal Reserve System. The Federal Reserve Board specified that the application submitted by Custodia was “inconsistent with the factors required by law.” This week, the Fed published its explanation as to why it rejected the Wyoming bank. Custodia would be distinct from the numerous banks currently in operation, as it holds a complete reserve and more to cover deposits.

A statement from Custodia published on March 24 highlighted the need for a bank that operates in this manner, following the collapse of several banks. “Historic bank runs in the last two weeks underscore the dire need for fully solvent banks that are equipped to serve fast-changing industries in an era of rapidly improving technology,” the company stated. “That is the exact model proposed by Custodia Bank – to hold $1.08 in cash to back every dollar deposited by customers. Regrettably, the Federal Reserve did not pay enough attention and allowed bank run risks to accumulate at conventional banks.”

The Fed stated in its decision that it had “fundamental concerns” about Custodia’s application, including its “novel and unprecedented features.” One problem the Fed has with Custodia’s business model is its concentration on narrow banking and the provision of services to crypto clients. “In general, the board has heightened concerns about banks with business plans focused on a narrow sector of the economy,” the U.S. central bank’s board stated. “Those concerns are further heightened concerning Custodia because it is an uninsured depository institution intending to concentrate nearly solely on offering products and services connected to the crypto-asset sector, which raises greater concerns of illicit finance and safety and soundness risks.”

Could Narrow Banking Pose a Threat to the Current Fractional Reserve Model?

Narrow banking is a system that restricts lending activities to only safe, low-risk investments and maintains a 100% reserve requirement against these investments. It is sometimes called “100% reserve banking.” However, as Bitcoin.com News reported in another article on fractional reserve banking, narrow banking is not a widespread practice these days, especially among the 4,997 banks in the United States. The U.S. has not witnessed many narrow banking practices since the Suffolk System, a method developed by a group of New England-based banks in the early 19th century.

During the Suffolk System, member banks had to maintain 100% of their deposits in reserve with the Suffolk member banks, which issued a common currency that could be used by customers of any participating bank. Despite its success in stabilizing the New England banking system, the Suffolk System was eventually replaced by fractional reserve banking. The system is also believed to have functioned similarly to modern-day central banks, as one study indicates that the “private commercial bank also provided some services that today are provided by central banks.”

The International Monetary Fund (IMF) has published a paper on narrow banking, but the author of the report says that the “economic costs of narrow banking could be particularly significant in developing countries.” The IMF report also suggests that a core banking model would be a better alternative. The U.S. Federal Reserve has been pushing back against narrow banking for quite some time, even before the Custodia denial. An editorial published by klgates.com in 2019 detailed how “the Board of Governors of the Federal Reserve System recently took action aimed at maintaining the status quo.”

The article noted that on March 12, 2019, the U.S. central bank issued an advance notice of proposed rulemaking (ANPR) to Regulation D. The authors, Stanley Ragalevsky and Robert Tammero Jr., detailed that the Fed ANPR came around the same time the Federal Reserve Bank of New York won a lawsuit against the financial institution TNB USA. The “nonbank” TNB sued the Federal Reserve in 2012 over its application to become a narrow bank in 2010.

At the time, TNB claimed that the Federal Reserve’s delay was motivated by pressure from traditional banks that saw TNB’s narrow banking model as a competitive threat. TNB’s argument may just be the crux of the situation as the current modern banking model is entirely based on the fractional reserve model. At a time when banks are failing, a narrow bank or 100% reserve-based financial institution’s model could be very popular.

It could also encourage other banks to follow the trend, as outlier banks that copied member banks within the Suffolk System in the early 19th century benefited from the idea of full reserve banking. Counter-arguments against the Suffolk System suggest the bank was attempting to establish a monopoly. However, with the number of banks decreasing by 83.34% over the last 100 years from 30,000 to 4,997, one could argue that there’s a monopoly over free banking practices.

Meanwhile, Custodia says it is taking its issues with the U.S. central bank to court. “The recently released Fed order is the result of numerous procedural abnormalities, factual inaccuracies that the Fed refused to correct, and general bias against digital assets,” Custodia explained in a statement on Friday. “The recently released Fed order is the result of numerous procedural abnormalities, factual inaccuracies that the Fed refused to correct, and general bias against digital assets,” Custodia said. “Rather than choosing to work with a bank utilizing a low-risk, fully-reserved business model, the Fed instead demonstrated its shortsightedness and inability to adapt to changing markets.”

Custodia added:

Perhaps more attention to areas of real risk would have prevented the bank closures that Custodia was created to avoid. It is a shame that Custodia must turn to the courts to vindicate its rights and compel the Fed to comply with the law.

What are your thoughts on the Federal Reserve’s stance towards the crypto-asset sector and narrow banking methods? Share your opinions in the comments section below.

Jamie Redman

Jamie Redman is the News Lead at Bitcoin.com News and a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open-source code, and decentralized applications. Since September 2015, Redman has written more than 6,000 articles for Bitcoin.com News about the disruptive protocols emerging today.

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The number of irretrievably lost bitcoins has now reached 6 million, which leaves 13.3 million as coins that remain in circulation, Timothy Peterson of Cane Island Alternative Advisors has said. Peterson added that out of the 1.7 million bitcoins that will be mined in the next 100 years or more, one million coins will be lost in the same period.

One Million Lost Bitcoins

According to Timothy Peterson, an author and manager of Cane Island Alternative Advisors, the number of irretrievably lost bitcoins has now reached 6 million. In his latest tweet on the subject, Peterson asserts that from the estimated 19.3 million bitcoins that had been mined by March 25, 2023, only 13.3 million remain in circulation which is “probably all you will have access to in your lifetime.”

I estimate that, as of this week, 6 million of the 19.3 million #bitcoin mined have been irretrievably lost. (See related research at https://t.co/ULso76SXjD ) This means 13.3 million remain with only 1.7 million left to be mined over the next 100+ years. In that time, it’s… pic.twitter.com/WpiSNT9TSF

— Timothy Peterson, CFA CAIA (@nsquaredcrypto) March 25, 2023

The author’s latest estimate of the number of bitcoins that will ever circulate appears to be in tandem with his 2020 prediction. As reported by Bitcoin.com News in Sept. 2020, Peterson claimed then that the ongoing loss of an estimated 1,500 BTC per day meant only fewer than 14 million coins will ever circulate. In their 2020 note, researchers at Cane Island also insisted that the widely used BTC capitalization is inaccurate because it includes coins that are irretrievably lost.

While some bitcoiners have either questioned or dismissed Peterson’s past claims including Cane Island’s April 16, 2020 research note, in his March 25 tweet the author appears to use the same findings to back his latest prediction. In the tweet, he also predicts a loss of one million BTC in the next 100+ years.

“This means 13.3 million remain with only 1.7 million left to be mined over the next 100+ years. In that time, it’s almost certain that another million will be lost, and old coins are being lost as new coins are being created. The 13 million circulating now is probably all you will have access to in your lifetime,” Peterson explained in the tweet.

#Bitcoin Active Supply through Time

In The Spectacular Journey of #Bitcoin series,
we today look at Active Supply through time

Has #BTC found its equilibrium?

Check my free, open site for #onchain analysis https://t.co/yVmCtJlihh

Data is gathered from my own bitcoin node. pic.twitter.com/RBeO8OgUEf

— The ₿itcoin Researcher (@ResearchBTCNow) October 26, 2022

However, in their response to Peterson’s latest tweet, a user going by the name of The Bitcoin Researcher insisted that the number of BTC in circulation is in fact 15.5 million. According to their tweet, The Bitcoin Researcher has based their findings on the assumption that coins which have not moved for the past seven years are lost.

What are your thoughts on this story? Let us know what you think in the comments section below.

Terence Zimwara

Terence Zimwara is a Zimbabwe award-winning journalist, author and writer. He has written extensively about the economic troubles of some African countries as well as how digital currencies can provide Africans with an escape route.

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According to the Montenegro-based newspaper Vijesti, Do Kwon, the co-founder of Terraform Labs, also known as Kwon Do-hyung, is appealing the detention extension ordered by a Montenegrin court. Kwon was arrested on March 23, 2023, after being caught at Podgorica Airport in Montenegro while traveling with fraudulent identification documents.

Report Says Kwon’s Legal Representation Aims to Appeal 30-Day Detention Extension

Three days ago, Montenegro’s Interior Minister Filip Adzic announced on Twitter that Do Kwon, the co-founder and CEO of Terraform Labs, was arrested on Thursday for presenting forged identity documents. Kwon’s location was unknown for some time, with speculation that he was hiding in Singapore or possibly Dubai.

The Montenegrin police stated that Kwon’s fraudulent documents originated from Costa Rica and Belgium. According to the Montenegrin newspaper Vijesti and local media, Kwon’s legal team is seeking to appeal his 30-day detention extension. Kwon is facing several legal challenges abroad, including an investigation in South Korea and multiple lawsuits in the United States.

The report notes that detention for Kwon’s offense is typically limited to 72 hours, but the court granted the extension due to Kwon’s status as a flight risk. Montenegrin prosecutors have stated that Kwon and his companion’s identities have not been completely verified and that foreign prosecutors, such as those from South Korea, are seeking Kwon’s extradition. Two days ago, a South Korean spokesperson announced that their prosecutors are taking measures to “repatriate Kwon Do-hyung.” Kwon’s legal team and Vijesti reporters say that the appeal will be filed this week.

What do you think will be the outcome of Do Kwon’s legal battles in Montenegro, South Korea, and the United States? Share your thoughts about this subject in the comments section below.

Jamie Redman

Jamie Redman is the News Lead at Bitcoin.com News and a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open-source code, and decentralized applications. Since September 2015, Redman has written more than 6,000 articles for Bitcoin.com News about the disruptive protocols emerging today.

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U.S. law enforcement has seized 18 cryptocurrency ATMs that were purchased using fraudulent loans from the Small Business Administration (SBA) meant to assist small businesses financially harmed by the Covid-19 pandemic. The loans were also used to purchase bitcoin from a New York-based cryptocurrency exchange, said the U.S. Department of Justice (DOJ).

Coindawg’s Crypto ATMs Seized

The U.S. Department of Justice (DOJ) announced on Thursday that Charles Riley Constant, aka Chuck Constant, has been arrested “for charges in connection with a scheme to steal and launder over $1 million in fraudulently obtained loans from the Small Business Administration (SBA), including the use of fraud proceeds to purchase cryptocurrency ATMs.” The Justice Department detailed:

Law enforcement agents seized, among other things, 18 cryptocurrency ATMs in Texas and Oklahoma that Constant purchased with fraud proceeds to start a cryptocurrency ATM business named ‘Coindawg LLC,’ as well as Coindawg’s website.

The DOJ explained that Constant and his co-conspirators created fake identities and businesses to obtain seven Economic Injury Disaster Loans from the SBA beginning in the fall of 2020. The funds were meant to assist small businesses financially harmed by the Covid-19 pandemic.

Constant used about $700,000 of the fraudulently obtained SBA loans to purchase bitcoin (BTC) from a cryptocurrency exchange headquartered in New York City, the DOJ further noted.

The Department of Justice continued:

To date, Coindawg has exchanged over $3,000,000 worth of cryptocurrency and charged 15% in transaction fees.

Constant, 54, of Allen, Texas, has been charged with one count of conspiracy to commit money laundering, one count of theft of public money, and one count of interstate receipt of stolen money. If convicted, he faces a maximum sentence of 20 years in prison for conspiracy to commit money laundering and 10 years each for theft of public money and interstate receipt of stolen money.

What do you think about this case? Let us know in the comments section below.

Kevin Helms

A student of Austrian Economics, Kevin found Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open-source systems, network effects and the intersection between economics and cryptography.

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