BNY Mellon Moves Towards Offering Custodial Services for Crypto ETFs

America’s oldest bank, BNY Mellon, is progressing towards offering custodial services to exchange-traded fund (ETF) clients, as reported by Bloomberg.

The bank’s ability to provide these services stems from a review that allowed it to avoid categorizing the assets as a balance-sheet liability. This review was conducted earlier this year by the Office of the Chief Accountant at the Securities and Exchange Commission (SEC). The SEC did not challenge BNY’s claim that safeguarding crypto assets for its regulated exchange-traded product clients should not appear on BNY’s balance sheet.

It seems the SEC has granted BNY Mellon an exemption from SAB 121, facilitating the bank’s entry into the custodial services market for crypto ETF clients.

BNY Mellon’s potential involvement in the crypto ETF custody sector could pose a threat to Coinbase, which currently dominates the market by providing custodial services for the majority of U.S. spot bitcoin ETFs, including the largest issued by BlackRock.

According to Bloomberg, the crypto custody market is valued at approximately $300 million and is expanding annually at a rate of 30%. Custody service providers can charge significantly higher fees than those for traditional assets, due to the heightened security risks associated with digital assets.

Since at least January 2023, BNY Mellon has shown a keen interest in digital assets. During an earnings call, CEO Robin Vince stated that digital assets represent the bank’s “longest-term play.” The bank currently supports 80% of SEC-approved bitcoin and ether exchange-traded products through its fund services business.