Bank of New York Mellon (BNY) is moving forward with plans to offer custody services for Bitcoin and Ethereum held by its exchange-traded product (ETP) clients following regulatory review.
Regulation and SEC Review
The move comes after a regulatory review allowed the bank to avoid treating these digital assets as balance sheet liabilities. The review conducted by the Office of the Chief Accountant at the Securities and Exchange Commission (SEC) supported BNY’s conclusion that crypto asset custody for regulated ETP clients should not appear on its balance sheet. BNY announced the development in a statement to Bloomberg News.
Importance of Crypto Custody Services
Crypto custody, particularly for ETPs, has emerged as a sought-after service due to the high demand for security against attacks and breaches that plague the digital asset industry. Providers can charge fees up to 10 times higher for crypto custody compared to traditional assets due to the added complexity. The crypto custody market is estimated to be worth $300 million and is growing at a rate of approximately 30% per year. BNY initially said it was ready to offer digital asset custody services in 2022, but SAB 121 created challenges in executing this plan.
Future of Crypto Services at BNY
BNY currently supports 80% of SEC-approved Bitcoin and Ethereum ETPs through its fund services, positioning the bank to offer an end-to-end solution for clients as crypto custody services launch at scale. The launch of U.S. spot-Bitcoin exchange-traded funds (ETFs) earlier this year, including products from BlackRock and Fidelity, further highlights the opportunities in this sector. Bitcoin ETFs currently manage more than $58 billion in assets, while Ethereum ETFs have more than $7 billion in assets.
Despite regulatory challenges, BNY Mellon continues to see strong demand for crypto custody services that could help it compete with market leaders like Coinbase. Digital asset regulation has become a hot political topic in the United States, and SEC Chairman Gary Gensler is expected to testify before the House Financial Services Committee today.
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