BNY Mellon is making significant strides in entering the crypto custody market, particularly for Bitcoin and Ethereum exchange-traded funds (ETFs), following an exemption from the SEC, as reported by Bloomberg News on Sept. 24.
As per the report, BNY Mellon obtained an exemption from the SEC’s Staff Accounting Bulletin 121 (SAB 121) after a review by the Office of the Chief Accountant. This exemption allows the bank to categorize customer crypto holdings differently, eliminating the need to treat these assets as corporate liabilities.
This operational change could open up more opportunities for traditional banks to offer crypto custody services, a sector that has been largely out of reach for them until now. This development also positions BNY Mellon to challenge Coinbase’s current dominance in crypto asset management and further advances the firm’s crypto custody aspirations.
Disruption
The decision to provide custodial services for spot Bitcoin and Ether ETFs has the potential to disrupt the current market landscape, where Coinbase currently oversees the majority of Wall Street’s crypto ETFs, including those for major asset managers like BlackRock, with approximately $10 trillion in assets under management.
Currently, Coinbase’s role has solidified its position as a leader in the custody of digital assets for these funds, but BNY Mellon’s entry could shake up the competition and offer clients more choices.
BNY Mellon has shown a keen interest in the crypto custody sector since early 2023. In January of that year, CEO Robin Vince emphasized digital assets as part of the firm’s long-term strategic vision during an earnings call, acknowledging the increasing demand for digital asset services among institutional clients.
Analysts project that the crypto custody market is growing at a rate of around 30% annually and is currently valued at $300 million. If this growth trend continues, the market could surpass $1 billion by 2032, with an annual increase of roughly $90 million.
Regulatory hurdles
Despite the optimistic outlook, regulatory challenges pose a significant obstacle for BNY Mellon as it ventures into the crypto custody space.
Policymakers, including Congressman Patrick McHenry and Senator Cynthia Lummis, have raised concerns about the transparency of interactions between SEC staff and private companies.
In a joint letter to the SEC and other regulators, they highlighted private meetings that reportedly discussed SAB 121 exemptions. It remains unclear if BNY Mellon’s exemption was part of these discussions, raising uncertainties about the regulatory framework that will oversee the bank’s activities in the crypto market.
BNY Mellon’s success will heavily rely on its capacity to navigate the intricate regulatory environment while seizing the growing demand for digital asset services among institutional investors.
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