Bank of New York Mellon Corp. (BNY Mellon) is progressing towards offering custody services for Bitcoin and Ether held by exchange-traded product (ETP) clients, according to a report by Olga Kharif and Lydia Beyoud for Bloomberg News. This comes after a review by the U.S. Securities and Exchange Commission’s Office of the Chief Accountant, which did not object to BNY’s determination that cryptoassets held for regulated ETP clients should not be recognized on the bank’s balance sheet.
BNY Mellon told Bloomberg that this decision is specific to the ETP use case and does not fully resolve the challenges posed by the SEC’s SAB 121 rule. The bank plans to engage with regulators on additional use cases through a “facts and circumstances” process.
The potential for crypto custody services represents a lucrative opportunity, with providers potentially charging up to ten times more than for traditional assets, per the Bloomberg report. This premium is due to the heightened security needs in the crypto space, which has suffered substantial losses from hacks.
BNY Mellon, which oversees over $50 trillion in assets as of June 2024, also told Bloomberg there is “strong demand in the market for bank-qualified custodians for digital assets.” The bank already supports 80% of SEC-approved Bitcoin and Ether ETPs through its fund services business.
Bloomberg’s report also touched on the broader regulatory landscape, noting that digital asset regulation has become an election issue in the U.S. The article mentioned contrasting approaches from political candidates, with Republican nominee Donald Trump courting the industry and Democratic candidate Vice President Kamala Harris advocating for investment in AI and crypto under appropriate regulations.
The launch of U.S. spot-bitcoin ETFs earlier in January has underscored the opportunities in crypto custody, with these products amassing about $58 billion in assets. Ether counterparts have accumulated over $7 billion.
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