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Cryptocurrency News Articles
BNY Mellon Launches Bitcoin Exchange-Traded Fund (ETF) Custody Service
Sep 26, 2024 at 01:42 am
America’s largest custodian bank, BNY Mellon, is on track to launch a Bitcoin Exchange-Traded Fund (ETF) custody service.
America’s largest custodian bank BNY Mellon is now all set to launch a Bitcoin Exchange-Traded Fund (ETF) custody service. Once fully operational, the service will challenge Coinbase Custody for spot Bitcoin ETF issuers.
The launch of the Bitcoin ETF custody service will enable BNY Mellon to cater to institutional investors, expanding its presence in the crypto ecosystem.
Details of the BNY Mellon Bitcoin ETF Custody Service
A review by the U.S. Securities and Exchange Commission (SEC) is allowing BNY Mellon to avoid categorizing digital assets as a balance sheet liability, Bloomberg reported.
“The review, conducted earlier this year by the Office of the Chief Accountant at the Securities and Exchange Commission, didn’t object to BNY’s determination that the safeguarding of crypto assets for its regulated exchange-traded product clients shouldn’t be recognized on BNY’s balance sheet,” the bank told Bloomberg.
The bank launched its digital asset custody initiative in October 2022. BNY Mellon’s strategy was to treat crypto like other traditional assets, which were not recorded on its balance sheet. However, the bank faced challenges with the SEC’s Staff Accounting Bulletin (SAB) 121.
SAB 121 compels companies that hold crypto assets to list them on their balance sheets and generate a liability equal to their value. The crypto industry has long decried the rule as being overly restrictive.
In a development that could be crucial to institutional use of crypto, BNY Mellon appears to have found a way forward with the SEC’s non-objection to its crypto custody plans, which could be a turning point in the institutional use of crypto. The bank’s entry also signaled recognition of Bitcoin and other cryptocurrencies as legitimate financial instruments.
Is Trust Strained Between BlackRock and Coinbase?
As BNY Mellon makes its way into the crypto ETF custody market, it could eventually threaten Coinbase’s dominance. Coinbase provides custodian services to the majority of the U.S. spot Bitcoin ETF issuers, including the largest one from BlackRock.
On the other hand, there have been concerns raised about Coinbase’s custodial practices. Investors have been worried that Coinbase is buying “paper BTC,” or IOUs, for the Bitcoin ETF issuers, which is suppressing the price.
Unfortunately, despite the record inflows into Bitcoin ETFs, the price of BTC has largely stagnated over the last three months, lending credence to the investors’ concerns.
In light of these issues, BlackRock filed an amendment with the SEC to change the structure of its Bitcoin ETF, which will require Coinbase to process BTC withdrawals within 12 hours of receiving an instruction.
If left unchecked, this minor strain could lead to ETF issuers looking at alternative custodian service providers.
Will More Banks Join to Topple Coinbase’s Dominance?
There is growing speculation that the SEC exemption could be encouraging more traditional banks to enter crypto, which aligns with comments from BNY Mellon CEO Robin Vince about the bank preparing for a more active role in the digital asset space.
Interestingly, earlier reports showed banking giants Wells Fargo and JPMorgan disclosing Bitcoin ETF investments. Wells Fargo reported holding 37 shares of the ProShares Bitcoin Strategy ETF (BITO), while JPMorgan also disclosed holdings of $731,246 in Bitcoin ETFs from BlackRock, Bitwise, Fidelity, and Grayscale.
The banks’ interest in crypto investment products is likely to attract new investors to the space, making the prospect of more banks joining BNY Mellon to challenge Coinbase’s dominance not seem far-fetched.
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