BNY Mellon (BK), the oldest bank in the United States, has launched a cryptocurrency custody market for Bitcoin (BTC-USD) and Ether for spot exchange traded fund (ETF) clients such as BlackRock (BLK) and Franklin Templeton. We are preparing to enter the market.
This move could disrupt the dominance of leading digital asset manager Coinbase (COIN) in most spot Bitcoin ETFs in the US. As institutional interest in cryptocurrencies continues to grow, competition between emerging crypto-native companies and traditional financial institutions is likely to reshape the digital asset custody landscape.
SEC has no objection to cryptocurrency storage request
BNY Mellon has received a “no objection” response from the U.S. Securities and Exchange Commission (SEC) regarding a request to protect digital assets such as Bitcoin and Ether (ETH-USD) without recording them as balance sheet liabilities. Received. It could make it easier for banks to offer these services while complying with regulatory requirements, according to a Bloomberg report.
The SEC’s challenge addresses challenges posed by the financial regulator’s Staff Accounting Bulletin (SAB) 121. Under SAB 121, companies that hold virtual currencies on behalf of their customers are required to report them as liabilities on their balance sheets, but many financial institutions view this as restrictive. are. .
BNY Mellon is now in a position to offer custody services without this burden, potentially paving the way for other traditional banks to follow suit.
Custody models could expand beyond Bitcoin and Ether ETFs
Following the SEC’s “no objection” ruling on BNY Mellon’s Bitcoin and Ether custody request, SEC Chairman Gary Gensler said BNY Mellon’s cryptocurrency custody model could be applied to a variety of digital assets. He suggested that there was.
In an interview with Bloomberg on Thursday, SEC Chairman Gary Gensler commented on BNY Mellon’s proposed crypto custody framework, stating that the model it intends to use for custody of Spot Bitcoin and Ether ETFs is 2 suggested that it is not limited to one major digital asset. “Although the actual discussions were related to two cryptoassets, the structure itself was not dependent on what the cryptoassets were, and it did not matter what the cryptoassets were,” Gensler said. explained.
Gensler said in an interview with Bloomberg News after speaking at the New York Fed’s annual U.S. Financial Markets Conference that the SEC’s “no objection” is based on the custody structure itself, not the nature of the assets, and that other assets He emphasized that it has the potential to become operational. Banks may adopt a similar model for crypto storage, expanding the range of digital assets they can store.
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Regulatory approvals and challenges
The SEC’s approval is conditional on BNY Mellon’s use of separate cryptocurrency wallets, which ensure customer assets are protected and isolated from the bank’s assets in the event of bankruptcy. This wallet structure was developed in conjunction with the SEC’s Office of the Chief Accountant (OFA) and was a key element of the Office’s “no objection” decision.
Read more: What is a Bitcoin ETN?
Additionally, BNY Mellon will still need to approach the SEC’s OFA on a case-by-case basis. Therefore, this “does not completely resolve the issue of SAB 121, which effectively restricts bank custody of digital assets,” BNY said, adding that “additional use cases will also be considered through OCA’s ‘facts and circumstances’ process.” We will work with the OCA as well,” he added. appropriate”.
BNY Mellon’s strategic transition to crypto custody
With this move, the bank positions itself as a competitive player in the crypto custody market, targeting institutional clients seeking a secure and compliant way to invest in digital assets through ETFs.
The bank’s extensive experience in asset custody, coupled with its reputation and regulatory compliance, could make it an attractive alternative to existing crypto custodians.
The crypto custody market is currently valued at around $300 million (£224 million) and is growing at around 30% a year, according to Bloomberg estimates.
This field is lucrative because custody providers for digital assets often charge significantly higher fees compared to traditional assets due to the increased security risks.
Read more: Bitcoin price stagnates as analysts predict October rally
In January 2023, BNY Mellon CEO Robin Vince described digital assets as the bank’s “long-term game” during its fourth quarter 2022 earnings call. According to Bloomberg, BNY Mellon already supports 80% of SEC-approved Bitcoin and Ether exchange-traded products through its fund services business.
Coinbase Advantages and Potential Challenges
Coinbase remains the dominant custodian in the US spot Bitcoin ETF market, providing digital asset custody services to major companies such as BlackRock. The role of a custodian is critical to keeping the underlying digital assets safe and ensuring compliance with regulatory standards.
But BNY Mellon’s move into the Bitcoin and Ether custody space could have implications for the broader financial landscape. Increasing competition between traditional banks and crypto-native companies is likely to drive improvements in service quality, regulatory compliance, and security standards, increasing investor confidence and facilitating institutional adoption of digital assets.
While crypto-native companies have led innovation in this space, traditional banks like BNY Mellon bring scale, stability, and decades of experience managing institutional capital.
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