BNY Mellon’s Crypto Custody Shift Threatens Coinbase’s ETF Lead

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BNY Mellon is closer to providing custodial services for Bitcoin and Ether for ETF clients, as stated in a report from Bloomberg. This move could potentially challenge Coinbase’s current hold on the market, which primarily manages U.S. spot Bitcoin ETFs, including those for BlackRock.

These developments follow an assessment by the Office of the Chief Accountant at the SEC, which did not object to BNY Mellon’s decision that keeping crypto assets secure for its regulated exchange-traded products should not be classified as a balance-sheet liability.

This determination allows BNY Mellon to pursue crypto custody services without facing the constraints of accounting for these assets on their balance sheet, thereby overcoming a major barrier.

Furthermore, the SEC has afforded BNY Mellon an exemption from SAB 121, a regulation that typically compels banks to record crypto-related assets on their balance sheets. This exemption permits BNY to broaden its digital asset services without the regulatory limitations faced by other financial institutions.

Bloomberg’s report indicates that the current valuation of the crypto custody market is around $300 million, with growth occurring at a rate of approximately 30% per year. Custodians for digital assets can charge significantly higher fees compared to traditional asset management, given the elevated security risks associated with cryptocurrencies.

Since at least January 2023, BNY Mellon has expressed its interest in the digital asset sector, with CEO Robin Vince describing it as the bank’s “long-term strategy.” BNY Mellon already manages 80% of SEC-approved Bitcoin and Ether exchange-traded products through its fund services, providing a solid basis for entering the expanding crypto custody space.