BNY Mellon is taking major steps toward entering the crypto custody market, particularly for Bitcoin and Ethereum exchange-traded funds (ETFs), after receiving an exemption from the SEC, Bloomberg News reported on September 24.
According to the report, BNY Mellon received a waiver from the SEC’s Staff Accounting Bulletin 121 (SAB 121) during a review by the Office of the Chief Accountant. This exemption allows the bank to reclassify customer crypto holdings, meaning they don’t have to treat these assets as business liabilities.
This operational shift could allow more traditional banks to offer crypto custody services, a practice that has thus far remained largely inaccessible to them. The development also positions BNY Mellon to challenge Coinbase’s current dominance in crypto asset management and builds on the company’s cryptocurrency custody ambitions.
Disruption
The move to offer custodial services for spot Bitcoin and Ether ETFs could significantly disrupt the current market landscape, where Coinbase oversees most of Wall Street’s crypto ETFs, including those from major asset managers like BlackRock, which holds about $10 trillion in manages assets.
Currently, Coinbase’s role has positioned the company as a leader in digital asset custody for these funds, but the entry of BNY Mellon could increase competition and give customers more options.
BNY Mellon has shown a strong interest in the crypto custody sector since early 2023. In January of that year, CEO Robin Vince highlighted digital assets as part of the company’s long-term strategic vision during an earnings call, noting the growing demand for digital assets. services to institutional clients.
Analysts estimate that the crypto custody market is growing at around 30% annually and is currently valued at $300 million. If this growth trajectory continues, the market could surpass the $1 billion mark by 2032, with an annual increase of approximately $90 million.
Regulatory hurdles
Despite the promising prospects, regulatory challenges remain a major concern for BNY Mellon as the company looks to establish itself in the cryptocurrency custody space.
Lawmakers, including Congressman Patrick McHenry and Senator Cynthia Lummis, have raised concerns about the transparency of interactions between SEC staff and private companies.
In a bicameral letter to the SEC and other regulators, they cited private meetings in which the SAB 121 exemptions were reportedly discussed. It is unclear whether BNY Mellon’s exemption was part of these discussions, which raises questions about the regulatory landscape that will govern the bank’s activities in the crypto market.
BNY Mellon’s success will largely depend on its ability to navigate the complex regulatory environment while capitalizing on the growing demand for digital asset services among institutional investors.