BNY Mellon to Expand Custodial Services to Spot Bitcoin ETFs

The Bank of New York Mellon, with AUM of $50 trillion, plans to enter the custodial services market for spot exchange-traded funds based on Bitcoin and Ethereum, representatives of the bank told Bloomberg.

The agency noted that such a move could threaten Coinbase’s dominant position.

The Bitcoin exchange serves as the custodian for most products, with exceptions being the funds of Fidelity and VanEck. In the latter case, Coinbase acts as an additional partner.

According to Bloomberg, cryptocurrency custody services can be ten times more expensive compared to TradFi, considering the risks associated with their security.

The digital asset custody market is valued at $300 million, with the potential for annual growth of 30%.

In 2022, BNY Mellon received regulatory approval to launch a crypto custody service, but legislative constraints in the form of SAB 121 from the SEC made the implementation of this initiative problematic.

The document effectively made the commercial storage of clients’ digital assets unprofitable.

The review conducted by the agency’s Office of the Chief Accountant did not raise concerns regarding BNY’s proposal not to reflect crypto-ETF collateral on the organization’s balance sheet, the statement said.

In addition to the Commission, approval from other regulators, with whom BNY is in dialogue, will be required.

The SEC issued SAB 121 in April 2022. In February 2024, four industry organizations requested a relaxation of the document’s provisions. Commissioner Hester Peirce called the Bulletin and related oral guidance a “pernicious weed.”

Earlier, Senator Cynthia Lummis and Congressman Patrick McHenry highlighted the increased risks of loss of client funds due to the collapse of a crypto custodian under the rule’s implementation.

In May, the Senate supported a resolution to annul SAB 121. The U.S. House of Representatives passed a bill.

In July, Congress failed to override President Joe Biden’s veto on the repeal of SAB 121.