BNY Mellon Expands Digital Asset Custody with SEC Nod, Eyes Broader Use Beyond Bitcoin and Ether ETFs

In a significant move for the future of cryptocurrency in traditional banking, BNY Mellon Corp. is set to broaden its digital asset custody services beyond just Bitcoin and Ether, according to US Securities and Exchange Commission (SEC) Chair Gary Gensler. The bank recently received a “non-objection” from the SEC for its proposed custody structure, initially focused on safeguarding Bitcoin and Ether exchange-traded funds (ETFs). However, this structure could be applied to a wider range of digital assets.

BNY Mellon’s structure involves the use of individual crypto wallets, each paired with separate bank accounts to prevent commingling of customer and bank assets, ensuring client funds remain secure even in the event of a bankruptcy. “It didn’t matter what the crypto was,” Gensler told Bloomberg News after a speech at the Federal Reserve Bank of New York’s Treasury Market Conference. He emphasized that the structure could work for other digital assets, expanding possibilities for BNY Mellon and other financial institutions to venture further into the digital space.

This marks a critical development, as many cryptocurrency platforms like Celsius Network and FTX have faced insolvencies, leaving customers struggling to recover assets. Gensler credited BNY Mellon for “doing the legwork” to ensure that customer assets are properly protected under its new structure.

While the approval is a major win, it comes amid ongoing industry concerns about regulatory constraints, particularly regarding “Staff Accounting Bulletin 121,” which requires banks to reflect the value of digital assets on their balance sheets. The crypto industry has been vocal in its opposition to this requirement, but attempts to overturn it have so far been blocked by the Biden administration.

The crypto custody market is booming, currently valued at around $300 million and growing at a rate of 30% annually. As banks like BNY Mellon enter the fray, their ability to provide secure and cost-efficient services could disrupt non-bank custodians, who charge as much as 10 times more than traditional services.

BNY Mellon’s move to expand its digital asset custody offerings signals growing confidence among traditional financial institutions in the potential of cryptocurrencies, while also underscoring the ongoing regulatory challenges the industry faces as it matures.

Key Takeaways:

• BNY Mellon’s crypto custody structure could extend beyond Bitcoin and Ether ETFs, potentially applying to other digital assets.
• SEC Chair Gary Gensler praised the bank’s efforts to ensure customer funds are protected, even in cases of bankruptcy.
• The move could set a precedent for other banks to develop similar structures.
• Despite regulatory hurdles like SAB 121, the growing crypto custody market offers lucrative opportunities for traditional banks.

As the crypto market continues to evolve, developments like BNY Mellon’s custody structure could pave the way for further integration of digital assets into mainstream finance.

Ben Tang
Financial Desk