The US Office of the Comptroller of the Currency yesterday clarified that national banks and federal savings associations can act as crypto custodians. This means that institutions like JPMorgan, Bank of America and Goldman Sachs are allowed to keep custody over the private keys to their customers’ cryptocurrency wallets.
“A national bank may provide these cryptocurrency custody services on behalf of customers, including by holding the unique cryptographic keys associated with cryptocurrency,” so long as they manage the risks, wrote the OCC in an interpretive letter, published yesterday.
So, the big banks can now hold your Bitcoin the way they hold your dollars, which could, theoretically, make it easier for traditional investors to buy and store BTC.
Though financial institutions can become crypto custodians, that doesn’t mean they will dominate the market any time soon. Established crypto custodians, such as Gemini and Coinbase, are highly specialized and high-tech organizations; they offer niche services that have already been vetted by regulators.
Gemini said in a statement that the OCC’s announcement “validates” the company’s approach to regulation. Nathan McCauley, CEO of Anchorage, another crypto custodian that provides custody service to several banks, said that yesterday’s news addresses “a lack of regulatory clarity,” which he describes as a “big roadblock to more institutional activity in crypto.”
Will banks replace crypto custodians?
So, will the big banks take over the market? Not any time soon, Alex Mascioli, who heads institutional services for Bequant, a digital assets prime broker, told Decrypt. Mascioli said that although banks will “eventually” offer crypto custody services, “this changes nothing in the short-term” for established crypto custodians, “except perhaps providing a catalyst for more sophisticated investors to take a more serious look at the space.”
Institutional investors, said Mascioli, “are more likely to trust an established crypto-native firm with institutional-grade offerings rather than a traditional firm that has very little experience with these assets, or with a CEO that has publicly denounced them in the past.” (Among offenders are JP Morgan’s Jaime Dimon, who, despite his bank’s crypto-friendly outlook, has referred to Bitcoin over the years as a “fraud” and a “scam.”)
Itay Malinger, CEO of Curv, a crypto custodian for institutional investors, told Decrypt that while he anticipates that “many banks will soon enter the space,” they will have some catching up to do. But it’ll be worth it, he said: “Real growth in the space occurs when the traditional financial institutions enter the arena.”
A banker speaks
Ed Boyle, CEO of the upcoming crypto-friendly challenger bank Medici Bank, told Decrypt that his bank is “not seeking to become a crypto custodian in the short-term.”
Crypto custodial services, said Boyle, are irrelevant to banks, which make money from lending the money deposited by customers. Banks would only be interested in becoming custodians, he said, “if they were motivated to be an exchange or a lender of crypto.”
“I believe that being a crypto custodian is a stepping stone to more value added activities like lending,” he said. Both Gemini and Coinbase, for instance, operate exchanges.
In other words, for banks to become crypto custodians, it’s going to have to be worth their while. Will banks start lending out crypto?