State Street and Citi, two of the largest custodian banks, are preparing to enter the cryptocurrency custody business. State Street, the second-largest custodian bank, is set to launch its crypto custody services by 2026. Citi, the fourth-largest custodian, has also shown interest in the sector but has not disclosed a timeline for its entry. Both banks are making efforts to develop their digital asset services to meet increasing client demand.
State Street and Citi, are getting ready to offer crypto custody services. Source: XWhat Led to the Custodian Banks’ Interest in Crypto?
Custodian banks are responsible for storing financial assets on behalf of their clients. Traditionally, they have focused on stocks, bonds, and other investment products. However, as interest in cryptocurrencies continues to grow, banks are looking for ways to offer secure storage for digital assets.
One of the main reasons behind this move is the rising demand from institutional investors. Many large investment firms and hedge funds are now adding cryptocurrencies like Bitcoin to their portfolios. Banks want to retain these clients by offering them secure ways to store their digital assets.
A State Street survey showed a strong client appetite for digital asset custody.State Street has been exploring digital assets for years. In 2021, the bank launched State Street Digital, a division focused on blockchain and cryptocurrency. A year later, it partnered with UK-based Copper to develop custody technology, but the project was halted due to regulatory issues. In 2023, the bank resumed its efforts by teaming up with Taurus, a Swiss digital asset firm, to prepare for its crypto custody services.
Citi has also been building its presence in the digital asset space. In 2022, the bank partnered with Metaco, a crypto custody provider later acquired by Ripple. It also launched the Citi Integrated Digital Assets Platform (CIDAP) to support asset tokenization and corporate digital payments. However, Citi has kept a lower profile in the crypto sector compared to some of its competitors.
End of SAB 121 Opened the Door for Banks
For almost three years, U.S. banks were restricted from offering crypto custody services due to SAB 121, a rule issued by the Securities and Exchange Commission (SEC). This rule prevented banks from holding cryptocurrencies on their balance sheets, effectively keeping them out of the industry.
Banks pushed back against this regulation, arguing that they should be allowed to store digital assets just as they do with traditional financial products. Their lobbying efforts intensified as more institutional investors showed interest in Bitcoin and other cryptocurrencies. The SEC eventually decided to repeal SAB 121, clearing the way for banks to enter the crypto custody market.
Other Custodian Banks Have Already Made Progress
While State Street and Citi are just beginning their journey into crypto custody, other banks have already established their presence in the sector.
BNY Mellon, the world’s largest custodian bank, became the first major U.S. bank to receive an exemption from SAB 121 last year. This allowed it to hold Bitcoin and Ethereum exchange-traded funds (ETFs) for clients.
Northern Trust, the fifth-largest custodian bank, has been involved in crypto custody since 2020 through its partnership with Zodia Custody, a firm co-founded with Standard Chartered’s venture arm.
Standard Chartered, though not one of the largest custody banks, has taken a strong position in the crypto market. It offers digital asset custody services through Zodia and has been actively expanding its presence in the space.
Now that the regulatory barriers have been lifted, more banks are likely to enter the crypto custody market. The demand for secure storage of digital assets is growing, and banks are positioning themselves to meet this demand. As more traditional financial institutions begin offering secure storage for digital assets, the market could experience greater institutional adoption, increased liquidity, regulatory clarity, and overall stability.
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