One of the largest banks in the US, Bank of New York Mellon (BNY), is set to launch a new service offering custody for Bitcoin and Ethereum held by its exchange-traded product (ETP) clients. This development comes after the bank received regulatory approval to treat these digital assets as separate from its balance sheet liabilities. The Securities and Exchange Commission (SEC) conducted a review and agreed with BNY’s decision, stating that crypto asset custody for regulated ETP clients should not be considered a liability. However, BNY acknowledges that this decision does not fully address the broader challenges presented by the SEC’s rule known as SAB 121, which requires financial institutions to recognize crypto-related risks on their balance sheets. Despite this, BNY plans to continue collaborating with the SEC’s Office of the Chief Accountant to explore additional use cases. Crypto custody, especially for ETPs, is in high demand due to the need for enhanced security in the digital asset industry. Providers can charge significantly higher fees for crypto custody compared to traditional assets, leading to a market worth approximately $300 million and growing at a rate of 30% annually. BNY aims to offer end-to-end solutions for clients as it already supports 80% of SEC-approved Bitcoin and Ethereum ETPs through its fund services. The recent launch of US spot-Bitcoin exchange-traded funds (ETFs) further highlights the potential opportunities in this sector. Despite regulatory challenges, BNY is confident in the strong demand for its crypto custody services, positioning itself as a competitor to market leaders like Coinbase. The regulation of digital assets has become a contentious topic in the US, with crypto firms challenging the strict approach of SEC Chairman Gary Gensler. Gensler is expected to testify before the House Financial Services Committee today, fueling the ongoing debate over crypto oversight ahead of the 2024 elections.
