Grayscale Investment’s latest report, Rethinking the Future of Finance, defines the digital economy as “the intersection of technology and finance, increasingly defined by digital spaces, experiences, and transactions.”
With this in mind, it is not surprising that many financial institutions are beginning to offer services that allow customers to access Bitcoin (BTC) and other digital assets.
In the past year in particular, there has been an influx of financial institutions that have included subsidizing cryptocurrency storage. For example, in February 2021, Bank of New York Mellon or BNY Mellon announced plans to hold, transfer and issue bitcoin and other cryptocurrencies as an asset manager on behalf of its clients. Michael Demissie, head of digital assets and advanced solutions at BNY Mellon, told Cointelegraph that as of December 31, 2021, BNY Mellon had $46.7 trillion in assets under custody and/or management, and $46.7 trillion in assets under management. $2.4 trillion.
Following in the footsteps of BNY Mellon, Bilbao Vizcaya Argentaria (BBVA) announced in June 2021 that it will offer bitcoin trading and deposit services in Switzerland. So, in October last year, the United States Bank, the fifth largest retail bank in the United States, announced the launch of a cryptocurrency custody service for institutional investors.
Alex Tapscott, CEO of Ninepoint Digital Asset Group, told Cointelegraph that US banks have been struggling to launch cryptocurrencies since 2020. “Cryptocurrencies are a $2 trillion asset class, and cryptocurrencies are big business.” Tapscott added that the past year has been a turning point for many financial institutions, noting that on July 22, 2020, the Office of the Comptroller of the United States wrote a letter authorizing federally registered banks to provide cryptocurrency deposit services. As a result, many traditional banks started implementing cryptocurrency services in 2021.
Notably, it is also important to note that traditional banks have begun to work closely with cryptocurrency depositors and custodians to offer custody of digital assets.
Ramin Begdiliazari, Director of Product Management at Fidelity Digital Assets, told Cointelegraph that in view of the increasing demand from clients, exploring crypto solutions through custody relationships with digital asset providers is a natural next step for traditional financial institutions. He said:
“While banks can enter the digital asset market in a number of ways, such as building an end-to-end solution or acquiring existing vendors, relationships with existing and trusted custodial providers can provide an excellent alternative that allows for a fast and proven market path to meet customer needs.”
Bigdeliazari explained that Fidelity Digital Assets provides sub-deposit services to client companies, including banks, which in turn communicate with their clients. “These commitments demonstrate the potential for non-allocation of digital assets, allowing organizations to provide their customers with access to digital assets through the same interface and expertise they use to access other asset classes, without having to build any kind of infrastructure.”
To put this in perspective, the New York Digital Investment Group (NYDIG) is an assistant custodian bank that is partnering with the US bank to provide global fund clients with a Bitcoin deposit solution.
Collaboration between traditional banks and sub-managers is essential. Tapscott, for example, explained that while holding cryptocurrencies is a great opportunity, it is not without risks for banks. “Securing private keys could be the difference between a satisfied customer and money in the bank, or a class action and handcuffs. So, naturally, many major banks would prefer to work with companies that already have experience in the industry,” he said.
It has really become like this. Kelly Brewster, NYDIG’s director of marketing, told Cointelegraph that while the US bank is one of NYDIG’s most prominent banking partners, it is far from the only one. “NYDIG has already partnered with more than 35 banks and credit unions to bring bitcoin to Main Street,” she said.
While junior managers help traditional financial institutions participate in the digital asset ecosystem, Tapscott said crypto managers such as Gemini and Coinbase also play an important role. Tapscott, for example, mentioned that it expects white label solutions to be the preferred option for traditional banks that want to develop their own cryptocurrency deposit offerings. “Banks will eventually mark custodial solutions as their own, which will be managed by Gemini, Anchor.