US Bank Launches Crypto Custody Service

Diving brief:

  • The American bank launched cryptocurrency childcare services, the bank announced on Tuesday. However, at this stage, access is limited to institutional investment managers with funds in the United States and the Cayman Islands.
  • The services are also limited to certain currencies: Bitcoin, Bitcoin cash and Litecoin. Support for other parts, such as Ethereumis planned in due course, Gunjan KediaVice President of the Wealth Management and Investment Services Division of US Bank, told CNBC.
  • The offer follows a flurry of moves in the crypto space this year by major banks – particularly when Bitcoin’s value peaked in mid-April. Cryptocurrencies the flagship coin jumped more than 15 times, from $4,107 at the start of the covid-19 pandemic at $64,863 on April 14 before losing almost half of its value at the end of May. Bitcoin closed above $50,000 on Tuesday for only the third time, according to Yahoo finance.

Overview of the dive:

US Bank‘s offering, through a partnership with subcustodian NYDIG, is intended to help investment managers store private cryptographic keys for their clients — a service that fund managers could offer themselves. same, but finding the support of a brand like US Bank builds customer confidence. NYDIG, for its part, entered into similar crypto subcustodian agreements this year with Fiserv and FIS.

Besides Bitcoin’s rise in value, another motivating factor in the proliferation of crypto offerings among banks has been a change in the regulatory environment. The Office of the Comptroller of the Currency (OCC), under Trump-appointed Brian Brooks, issued guidance regarding banks’ use of stablecoins and blockchains, along with an interpretative letter stating that domestic banks are licensed to provide cryptocurrency custody services. (Acting Comptroller Michael Hsu said he would review those measures, as well as the OCC’s approval of charters for crypto businesses.)

Kedia told CNBC that US Bank clients “take the potential of cryptocurrency as a diverse asset class very seriously.”

“I don’t believe there’s a single asset manager who isn’t thinking about it right now,” she said.

With its decision to acquire MUFG Union Bank last month, US Bank established itself as the nation’s fifth-largest consumer bank – although each of the four banks above hold at least three times as many assets.

However, each of these four have cemented their crypto offerings — or at least a plan — in recent months, as have investment giants Goldman Sachs and Morgan Stanley, and custody giants BNY Mellon and State Street. .

BNY Mellon in February said it would develop a client-facing prototype this year for a multi-asset digital custody and administration platform. Goldman relaunched its Crypto trading desk the following month. Citi and State Street debuted digital-asset units in June. Wells Fargo said it plans to launch a Crypto investment platform at the same time. And Bank of America has created a team to research cryptocurrencies and digital currency-related technology.

Bank of America and JPMorgan

This team published its first research coverage mondayconcluding that crypto comprises a $2 trillion market with 200 million users – an industry that Bank of America calls “too big to ignore.”

“We believe that crypto-based digital assets could form a whole new asset class,” the analysts said, adding that venture capital investments in digital assets and blockchain technology exceeded $17 billion in the past. first half of 2021, according to CoinDesk.

That’s more than triple the $5.5 billion over the comparable six-month period of 2020.

US Bank also sees this as an opportunity. “What we were hearing across the board is that while all currencies might not survive – there may not be room for thousands of coins – there is something in the potential of this asset class and the underlying technology that it would be prudent for us to raise support,” Kedia told CNBC, adding that she expects demand to increase if the Securities and Exchange Commission (SEC) approves a Bitcoin exchange-traded fund.

Not all bank executives are all-in. While JPMorgan Chase extended its banking services to Bitcoin exchanges Coinbase and Gemini as early as April 2020, its CEO, Jamie Dimon, in an interview with Axios that aired on HBO on Sunday, called the asset class “a bit of a fool’s gold.”

“It has no intrinsic value. And regulators are going to regulate the hell out of it,” he said. “I always believed it would become illegal somewhere, like China made it illegal.”

Dimon’s comments date back to 2017, when Dimon called Bitcoin “fraudand said he would “in a second” fire anyone at JPMorgan found to be trading in the digital currency.

“It’s not a real thing, it’s going to be shut down eventually,” Dimon said at a conference that year. “You can’t have a business where people can invent a currency out of thin air and thinks the people who buy it are really smart.”

As he did in 2017, Dimon on Sunday referenced cryptocurrency as a potential medium for illegal activity.

“You can call it a security or an asset or something, but if people are using it for tax evasion, sex trafficking and ransomware, it’s going to be regulated whether you like it or not,” he said. he declared.

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