BNY Mellon’s crypto custody move could disrupt Coinbase’s ETF dominance

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BNY Mellon, is moving closer to offering custodial services for Bitcoin and Ether held by ETF clients, according to a report by Bloomberg. BNY Mellon’s entry into the crypto custody market could challenge Coinbase’s dominance, which currently handles most US spot Bitcoin ETFs, including BlackRock’s.

The bank’s progress comes after a review conducted by the Office of the Chief Accountant at the SEC. The review did not object to BNY Mellon’s determination that safeguarding crypto assets for its regulated exchange-traded product clients shouldn’t be recognized as a balance-sheet liability.

This ruling allows BNY Mellon to move forward without the burden of accounting for these digital assets on its balance sheet, clearing a significant hurdle in offering crypto custody services.

Additionally, the SEC granted BNY Mellon an exemption from SAB 121, a rule that typically requires banks to recognize crypto-related assets on their balance sheets. The exemption allows BNY to expand its digital asset services without the regulatory constraints that have limited other institutions.

According to Bloomberg’s report, the crypto custody market is currently valued at approximately $300 million and is growing by about 30% annually. Custodians of digital assets can charge significantly higher fees than those for traditional assets due to the heightened security risks associated with crypto.

BNY Mellon has been public about its interest in the digital asset space since at least January 2023, when CEO Robin Vince referred to digital assets as the bank’s “longest-term play.” BNY Mellon already supports 80% of SEC-approved Bitcoin and Ether exchange-traded products through its fund services business, giving it a strong foundation to capitalize on the crypto custody market as it grows.

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