Bloomberg: Wall Street giants are optimistic about the potential opportunities in the field of crypto custody and are waiting for the election results to clarify regulation
Hadley Stern, chief commercial officer of Marinade, a Solana custody tool, said custody costs in the crypto space are 10 times higher than protecting traditional assets such as securities and cash, making it a potential growth area that has attracted startups, Wall Street banks and other companies seeking to enter digital assets. Stern previously ran digital asset custody at Bank of New York Mellon.
So far, crypto-native companies such as Coinbase Global Inc. and BitGo Inc. have been the dominant service providers, while traditional financial companies have mostly been in holding mode due to concerns about regulatory uncertainty surrounding digital assets. Although the current custody market is only about $300 million, the business is still attractive, and companies such as Fireblocks Inc. estimate that the industry is growing at an annual rate of about 30%.
“New entrants are betting that this market will expand significantly,” said Campbell Harvey, a finance professor at Duke University.
Top custodian banks BNY Mellon, State Street Corp. and Citigroup Inc. have made initial forays into cryptocurrency custody or expressed interest.
Despite setbacks, these companies are still experimenting, and many of their plans revolve around protecting tokenized assets. JPMorgan Chase & Co., for example, operates a project called Onyx that allows blockchain payments between bank clients. In December, the Depository Trust & Clearing Corporation acquired Securrency to provide products for tokenizing traditional financial assets. In August, State Street selected vendor Taurus for tokenization and custody of digital asset services.
“This partnership will provide us with the technical foundation to provide digital asset custody services with regulatory approval once the regulatory environment, especially in the United States, becomes more favorable,” said Donna Milrod, head of digital asset solutions at State Street.
A major issue holding back established financial institutions is a U.S. SEC rule, SAB 121, that makes it impossible for highly regulated financial companies to provide cryptocurrency custody services. President Biden vetoed an effort by Congress to overturn the bill. Several banks have been exempted.
Overseas providers are also making plans for possible regulatory changes. After scaling back last year, London-based Copper is considering a renewed focus on the U.S. market if Trump wins.
"It could be faster or slower depending on the election results," said Bobby Zagotta, CEO of cryptocurrency exchange Bitstamp USA, which uses BitGo for custody. "Major Wall Street players won't miss any opportunity, especially if it marks an evolution in the traditional services market." (Bloomberg)
