Big banks can now hold Bitcoin. Should Crypto Custodians Be Worried?

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The U.S. 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 the private keys of their clients’ cryptocurrency wallets. “A national bank can provide these cryptocurrency custody services on behalf of clients, including holding the unique crypto keys associated with the cryptocurrency,” as long as they manage the risk, the OCC wrote in an interpretive letter, published yesterday.

So big banks can now hold your Bitcoin the same way they hold your dollars, which could, in theory, make it easier for traditional investors to buy and store BTC.

Although financial institutions can becoming crypto custodians doesn’t mean they will be dominating the market anytime soon. Established crypto custodians, such as Gemini and Coinbase, are highly specialized, high-tech organizations; they offer niche services that have already been approved 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 cryptocurrency custodian that provides custody service to several banks, said yesterday’s news dealt with “a lack of regulatory clarity,” which he describes as a “Major obstacle to more institutional activity in crypto”.

Will Banks Replace Crypto Custodians?

So, will the big banks take control of the market? Not anytime soon, Alex Mascioli, who directs institutional services for bequaem, a leading digital asset broker, said Decrypt. Mascioli said that while banks will “eventually” offer crypto custodial services, “it doesn’t change anything in the short term” for established crypto custodians, “except perhaps providing a catalyst for more sophisticated investors to look into. more seriously on space. “

Institutional investors, Mascioli said, “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 a CEO. who has publicly denounced them in the past. (Among the offenders are JP Morgan’s Jaime Dimon, who, despite his bank’s crypto outlook, has over the years called Bitcoin a “fraud” and a “scam.”)

Itay Malinger, CEO of Curv, a crypto custodian for institutional investors, says Decrypt that if he predicts that “many banks will be entering space soon,” they will have some catching up to do. But it will be worth it, he said, “Real growth in the space occurs when traditional financial institutions enter the arena.”

A banker speaks

Ed Boyle, CEO of the next crypto-friendly challenger bank Medici Bank, said Decrypt that his bank “is not looking to become a crypto custodian in the short term”.

Crypto custody services, Boyle said, are irrelevant for banks, which make money by lending money deposited by customers. Banks would only be interested in becoming custodians, he said, “if they were motivated to be a crypto exchange or lender.”

“I think being a crypto custodian is a stepping stone to higher value-added activities like lending,” he said. Gemini and Coinbase, for example, operate exchanges.

In other words, for banks to become cryptocurrency custodians, it will be worth it. Will banks start lending cryptocurrencies?

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