US Bank to Start Offering Crypto ETF Custody Services

US bank BNY Mellon is progressing with plans to start offering a crypto custody service to its Exchange-Traded Product (ETP) clients, following an earlier decision by the SEC which means BNY Mellon’s custodial crypto products are not treated as securities. BNY Mellon is taking tentative steps towards offering custody services to its clients, and will engage with the SEC further before offering the product, but this kind of relationship could open the market up further in the future.

Crypto Keys And Key Storage

Cryptocurrency is not tangible. When people buy Bitcoin, they access the private key that effectively gives them ownership of that currency. The key is needed to prove ownership and also to send Bitcoin to another wallet or other location.

When storing cryptocurrency on exchanges, private keys are generally kept by the exchanges themselves, and the buyer doesn’t receive them. When using a crypto wallet, on the other hand, the key is stored in the wallet, giving the buyer full ownership of the cryptocurrency: click here to install a secure crypto wallet on your Apple device.

Crypto Key Custody Services

With a traditional cryptocurrency custody service, this means sending the keys to that service so they can store them using enterprise-level security. It is considered the safest way to store private keys, but it can be expensive. With exchange-traded products, it is more complicated. When an individual invests in an exchange-traded product, it is the fund itself that receives the keys and they will typically entrust these to professional custody services like those offered by BNY.

SEC Judgement

Earlier in 2024, the SEC made a judgment on the role of banks like BNY and their offering of these specific custody services. They decided that digital assets held for ETP custodial services do not have to be treated as liabilities on the bank’s books. This is different from how banks have to deal with custodial services for individual crypto holders. The SEC has determined that, in these cases, the crypto needs to be reported.

What The Decision Means

Banks like BNY Mellon are accustomed to dealing with regulatory requirements set out by the likes of the SEC. It is part of their banking business. They are clearly keen on expanding the custody services they have to offer and working with regulators to ensure they do so without running foul of existing and changing requirements.

Although there is no suggestion that BNY Mellon wishes to expand its custodial services to individual holders, this could become a reality in the future as they continue to deal with the SEC and its demands.

Bitcoin ETF History

Bitcoin Exchange Traded Funds were launched in January of this year following years-long negotiation and discussion between fund managers and the SEC. The first application for a Bitcoin ETF was launched in 2013 and despite spot Bitcoin ETFs launching in other countries sooner, it took until October 2021 for the SEC to approve even futures ETFs for the digital currency.

In June 2023, BlackRock applied to launch a Bitcoin spot exchange-traded fund, with the move causing Bitcoin prices to rise to one-year highs. In August of the same year, the appeals court in Washington ruled that the SEC did not have the jurisdiction to reject applications.

The SEC eventually decided not to appeal this decision and, instead, reexamined previous applications by Grayscale. On January 10, 2024, the SEC approved 11 ETF proposals and the funds were launched the next day.

Commentators and crypto investors hoped that the acceptance and offering of Bitcoin ETFs would bring in enterprise and major investors, with the promise of secure holdings and well-managed funds. Spot ETFs are also considered more transparent and are only really affected by the true price of the world’s largest cryptocurrency.

Ethereum ETFs Followed

Following the successful launch of Bitcoin ETFs, the SEC conceded that the court’s decision regarding Bitcoin ETFs would also hold true for Ethereum and therefore accepted applications for Ether ETFs, and, in July 2024, these funds also hit the market.

More Crypto ETFs To Come?

Many believe Solana to be the next cryptocurrency to get its own ETF products, with many pointing to the fact that Solana is faster and cheaper than Ether. As yet, however, there has been no news of any further cryptocurrency ETFs being accepted.

Crypto Investors’ Investment Options

Potential crypto investors now have many options when it comes to investing in cryptocurrency. It is possible to use large centralized exchanges like Coinbase and Binance to convert fiat currency to cryptocurrency. The funds can then be transferred to a personal wallet, either a digital or physical wallet, and held. Major investors may use custodial services, which are like digital bank vaults. The service holds the private keys for Bitcoin or other cryptocurrencies until the investor wishes to transfer their holdings.

It is also possible to buy ETFs or, if investors don’t want to be faced with the high levels of volatility typical in the crypto market, they can invest by buying shares in companies that are exposed to cryptocurrency. Some of the world’s largest mining companies, for example, offer opportunities to invest.

Crypto Security Options

Custody services have become popular because of the level of security they offer, and this is an important consideration with any type of investment. Investors should avoid keeping their crypto on exchanges. Even the biggest exchanges are prone to hacks and theft, and there have been numerous cases of prominent exchanges losing customer holdings.

Wallets are more secure but investors need to ensure that the wallet they choose is compatible with the cryptos they hold. Not all wallets are compatible with all cryptos. This is because wallets actually store private keys and then use these keys to access a particular blockchain and transfer the keys as needed.