BNY Mellon Leads Big Banks Into Crypto Custody

Bank of New York Mellon announced that it is offering cryptocurrency custody services for clients, bringing digital assets into the fold alongside the trillions of dollars of traditional assets it warehouses for the country’s biggest money managers.

The nation’s oldest bank, founded by Alexander Hamilton in 1784, BNY Mellon has $43 trillion in assets under custody and/or administration, as well as $1.9 trillion of assets it manages itself. The custody services platform is currently available only to select institutional clients in the U.S.

“Touching more than 20% of the world’s investable assets, BNY Mellon has the scale to reimagine financial markets through blockchain technology and digital assets,” said BNY Mellon CEO and President Robin Vince in the announcement. “We are excited to help drive the financial industry forward as we begin the next chapter in our innovation journey.”

While BNY Mellon is the first major custody bank to accept digital assets, it is not the only one interested in the cryptocurrency industry. In March, State Street announced that it planned to “launch an institutional grade digital custody offering where clients can store and settle their digital assets within a secure environment,” leveraging its “robust infrastructure and vast experience to assist clients’ transition and thrive in the new digital economy.”

Asset Tokenization Too

As for why BNY Mellon is entering the digital assets space as it heads into a “crypto winter” that has seen most cryptocurrencies’ value nosedive, with bitcoin down about 75% in the past year, the answer is fairly straightforward: Customers want it.

BNY Mellon said in the announcement that it recently found that more than 40% of institutional investors hold cryptocurrencies in their portfolios, and it expects that to climb to 55% in the next two to five years.

“We are on a journey towards a future where blockchain and related capabilities will transform the financial services landscape,” said Mike Demissie, head of digital assets and advanced solutions at BNY Mellon in a separate statement.

Straight cryptocurrency investments in bitcoin, Ethereum and the like may not be the biggest factor. More than nine out of 10 hedge funds, institutional asset managers and asset owners like pension funds, endowments and insurance firms are interested in tokenized assets — putting traditional assets like equities, commodities and real estate onto crypto tokens or non-fungible tokens (NFTs) — the bank noted.

See also: JPMorgan Plans to Tokenize Traditional Assets

State Street sees the same growing institutional interest, Nadine Chakar, head of State Street Digital, said in March.

As that happens, “we are building the financial infrastructure needed to support our clients’ allocations to this new asset class,” said Chakar said. “State Street Digital’s mission continues to focus on putting the right tools in place so we can provide clients with solutions to support their traditional, as well as digital assets needs.”

Tokenization is a key for it as well, Nicole Olson, a vice president of digital product development and innovation at State Street, told Blockworks in August.

“There’s a significant opportunity there for State Street to play and for State Street clients,” Olsen said in the report. “It’s broadly adding digital tech to those more traditional assets and bringing them into the future.”

Who’s Holding Matters

“As the world’s largest custodian, BNY Mellon is the natural provider to create a safe and secure digital asset custody platform for institutional clients,” said BNY Mellon CEO of Custody Services Caroline Butler in the company’s announcement.

While BNY Mellon will be holding the digital assets itself, it isn’t building the technology from scratch.

BNY Mellon said in the announcement it has tapped crypto-industry, institution-focused custody services firm Fireblocks, as well as blockchain data and security firm Chainalysis, “to integrate their technology in order to meet the present and future security and compliance needs of clients across the digital asset space.”

The same is true of State Street, which has partnered with London-based institutional custodian Copper.co and said it is waiting primarily for regulatory approvals.

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