{"id":8270,"date":"2022-02-21T00:59:40","date_gmt":"2022-02-21T00:59:40","guid":{"rendered":"https:\/\/nftandcrypto-news.com\/crypto\/future-of-finance-us-banks-partner-with-crypto-custodians\/"},"modified":"2022-02-21T00:59:43","modified_gmt":"2022-02-21T00:59:43","slug":"future-of-finance-us-banks-partner-with-crypto-custodians","status":"publish","type":"post","link":"https:\/\/nftandcrypto-news.com\/crypto\/future-of-finance-us-banks-partner-with-crypto-custodians\/","title":{"rendered":"Future of finance: US banks partner with crypto custodians"},"content":{"rendered":"
<\/p>\n
Grayscale Investments\u2019 latest report \u201cReimagining the Future of Finance\u201d defines the digital economy as \u201cthe intersection of technology and finance that\u2019s increasingly defined by digital spaces, experiences, and transactions.\u201d\u00a0<\/p>\n
With this in mind, it shouldn\u2019t come as a surprise that many financial institutions have begun to offer services that allow clients access to Bitcoin (BTC) and other digital assets.\u00a0<\/p>\n
Last year, in particular, saw an influx of financial institutions incorporating support for crypto-asset custody. For example, Bank of New York Mellon, or BNY Mellon, announced in February 2021 plans to hold, transfer and issue Bitcoin and other cryptocurrencies as an asset manager on behalf of its clients. Michael Demissie, head of digital assets and advanced solutions at BNY Mellon, told Cointelegraph that BNY Mellon had $46.7 trillion in assets under custody and\/or administration and $2.4 trillion in assets under management as of December 31, 2021.<\/p>\n
Following in BNY Mellon\u2019s footsteps, Banco Bilbao Vizcaya Argentaria (BBVA), stated in June 2021 that it would offer Bitcoin trading and custody services in Switzerland. Then in October of last year, U.S. Bank \u2014 the fifth-largest retail bank in the United States \u2014 announced the launch of its cryptocurrency custody service for institutional investors.<\/p>\n
Alex Tapscott, \u200b\u200bmanaging director of Ninepoint Digital Asset Group, told Cointelegraph that United States banks have been scrambling to launch crypto asset custody since 2020. \u201cCrypto assets are a $2 trillion asset class and crypto-asset custody is a big business.\u201d Tapscott added that last year was a turning point for many financial institutions, noting that on July 22, 2020, the U.S. Office of the Comptroller of the Currency, wrote a letter granting permission to federally chartered banks to provide custody services for cryptocurrency. As a result, many traditional banks began to incorporate crypto custody services in 2021.<\/p>\n
While notable, it\u2019s also important to point out that traditional banks have started working closely with crypto custodians and sub-custodians to introduce custody for digital assets.<\/p>\n
Ramine Bigdeliazari, director of product management for Fidelity Digital Assets, told Cointelegraph that given the growing demand from customers, the exploration of crypto solutions through custodial relationships with digital asset service providers is a natural next step for traditional financial institutions. He said:<\/p>\n
\u201cWhile there are a handful of ways that banks could enter the digital asset market, like building an end-to-end solution or acquiring existing providers, sub-custodial relationships with existing and trusted service providers could provide a superior alternative that allows for a quick and proven path to market to meet clients\u2019 needs.\u201d<\/p><\/blockquote>\n
Bigdeliazari explained that Fidelity Digital Assets provides sub-custody services to client firms including banks who, in turn, interface with their customers. \u201cThese engagements showcase the potential for digital assets sub-custody to allow institutions to provide their customers access to digital assets through the same interface and experience they use to access other asset classes without having to build any infrastructure.\u201d<\/p>\n
To put this in perspective, New York Digital Investment Group (NYDIG) is a sub-custodian that has partnered with U.S. Bank to provide its \u201cGlobal Fund Services\u201d customers with a Bitcoin custody solution.<\/p>\n
The partnership between traditional banks and sub-custodians is an important one. For instance, Tapscott explained that while crypto asset custody is a big opportunity, it\u2019s not without risk for banks. \u201cSecurely storing private keys can be the difference between a satisfied customer and money in the bank or a class action lawsuit and handcuffs. So, naturally, a lot of big banks prefer to partner with firms that already have that industry expertise,\u201d he said.<\/p>\n
This has indeed become the case. Kelly Brewster, chief marketing officer at NYDIG, told Cointelegraph that while U.S. Bank is among NYDIG\u2019s most prominent banking partners, it\u2019s far from the only one. \u201cNYDIG has already partnered with more than 35 banks and credit unions to bring Bitcoin to Main Street,\u201d she remarked.<\/p>\n
While sub-custodians are helping traditional financial institutions participate in the digital assets ecosystem, Tapscott said that crypto custodians like Gemini and Coinbase also play an important role. For instance, Tapscott mentioned that he expects \u201cwhite label\u201d solutions to be the preferred choice for traditional banks looking to develop their own crypto custody offerings. \u201cBanks will eventually brand custody solutions as their own, which will be powered by Gemini, Anchorage, BitGo or some other established crypto custodian,\u201d he explained.<\/p>\n
Moreover, digital asset infrastructure providers are also helping bridge the gap between traditional banks and the world of crypto. For example, Fireblocks has partnered with BNY Mellon to enable its digital asset custody solution. Stephen Richards, vice president and head of product strategy and business solutions at Fireblocks, told Cointelegraph that BNY Mellon is using Fireblocks\u2019 technology stack, along with other internal components, to enable customers to hold digital assets.<\/p>\n
Demissie elaborated that BNY Mellon is building its own digital assets custody platform enabled by technology investments the bank has made in the space. For instance, BNY Mellon made a Series C investment in Fireblocks in March 2021.\u00a0<\/p>\n
\u201cOur digital asset custody platform is currently under development and testing, and we plan to bring it to market this year pending regulatory approvals,\u201d Demissie stated, adding that BNY Mellon is currently providing fund services for digital asset-linked products including those from Grayscale Investments, the world\u2019s largest digital asset manager. \u201cWe also service 17 of 18 active cryptocurrency funds in Canada.\u201d<\/p>\n
Will big banks threaten crypto\u2019s decentralization?<\/h2>\n
According to Demissie, digital assets are here to stay, as he believes they are increasingly becoming part of the mainstream. \u201cOur clients expect BNY Mellon, as their trusted service provider, to extend our core services to this emerging asset class,\u201d he said. Yet, while incorporating digital assets within traditional finance may be a big step for the crypto ecosystem, some may wonder if big banks will threaten the decentralized nature of crypto assets.<\/p>\n
Although this is a relevant concern, Tapscott pointed out that many institutional and retail holders of crypto assets prefer to store assets with custodians. \u201cWhether it\u2019s a crypto-native custodian like Gemini or a big bank is irrelevant. Your keys will be held by someone else.\u201d However, Tapscott remarked that this notion doesn\u2019t prevent millions of other crypto holders from being their own bank and storing coins in hardware wallets.<\/p>\n
Further shedding light on the matter, Anthony Woolley, head of business development at market digitalization firm Ownera, told Cointelegraph that regulation invariably requires an entity, such as a transfer agent, to be accountable for the record of ownership of any security. As such, Woolley does not believe that digital securities can ever be fully decentralized while being regulatory compliant.<\/p>\n
However, Woolley suggested that it may be possible to conceive of a world where regulated digital securities are transacted peer-to-peer with instant payment, transfer of ownership and settlement. \u201cWe believe that this is the type of decentralization that investors and society as a whole needs.\u201d<\/p>\n
Bottom line: Banks must work with crypto custodians\u00a0<\/h2>\n
Concerns aside, the rising demand for digital assets from institutional investors will result in traditional financial institutions working hand-in-hand with crypto custodians and service providers.<\/p>\n
Matt Zhang, a former trading executive at the global bank Citi and founder of Hivemind Capital Partners \u2014 a $1.5 billion multistrategy fund <\/u>designed to help \u201cinstitutionalize crypto investing\u201d \u2014 told Cointelegraph that banks have a much higher regulatory bar to develop when it comes to new products and services, and crypto custody is one of the most complex of all:<\/p>\n
\u201cThat said, the client demand is there so banks need to find ways to partner up with sub-custodians to package the service in the short term while figuring out the road map to develop it in house. Certain banks are definitely ahead of the others but, as an industry, Wall Street is playing a catch up game right now coming into crypto custody.\u201d<\/p><\/blockquote>\n
To Zhang\u2019s point, research from NYDIG\u2019s Bitcoin + Banking survey released last year found that customers and clients would prefer to access Bitcoin via an offering through their current bank that is consistent with existing standards of quality and risk management. NYDIG\u2019s findings also show that 71% of Bitcoin holders would switch their primary bank to one that offers Bitcoin-related products and services. \u201cBanks that aren\u2019t preparing to offer these products and services risk getting left behind,\u201d said Brewster.<\/p>\n
More specifically, Zhang added that overall he thinks that many major banks will offer access to crypto assets, making the space competitive. As such, he believes that leading financial institutions will be those who can offer a vertically integrated product offering. \u201cThink trading, lending, prime, custody and banking, rather than just custody on a standalone basis.\u201d\u00a0<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"
Grayscale Investments\u2019 latest report \u201cReimagining the Future of Finance\u201d defines the digital economy as \u201cthe intersection of technology and finance that\u2019s increasingly defined by digital spaces, experiences, and transactions.\u201d\u00a0 With this in mind, it shouldn\u2019t come as a surprise that many financial institutions have begun to offer services that allow clients access to Bitcoin (BTC) […]<\/p>\n","protected":false},"author":1,"featured_media":8271,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","om_disable_all_campaigns":false,"footnotes":""},"categories":[42],"tags":[],"class_list":["post-8270","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-crypto"],"yoast_head":"\n
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