US Banks Seek Greater Role in Bitcoin ETF Management

The association of major US banks sent a letter to SEC Chairman SEC Gary Gensler, requesting a change in the definition of crypto assets to allow financial institutions to participate in the custody of spot Bitcoin ETFs.

Signatories included the Bank Policy Institute, the American Bankers Association, the Financial Services Forum, and the Securities Industry and Financial Markets Association.

“The Commission recently approved 11 spot Bitcoin ETFs, providing investors access to this asset class through a regulated product. However, these instruments clearly lack banking organizations acting as custodians. This role they have regularly played for most other ETP.”

The banking association asked the regulator to amend Staff Accounting Bulletin 121 (SAB 121), approved in March 2022. The document contains guidelines for cryptocurrency custody.

Representatives of financial organizations noted that since the issuance of the guidance, “several important events” have occurred over two years, including the launch of spot ETFs based on the first cryptocurrency.

Current provisions require banks to hold assets on their balance sheets. This makes custody costly and limits the ability of institutions to provide custodial services on a large scale, the association emphasized.

Amendments to SAB 121 aim to narrow the definition of digital assets and exclude traditional products recorded on the blockchain from the document. Such an approach, according to the initiative’s authors, will prevent tokenized deposits from falling under strict cryptocurrency rules.

Banks also demand the removal of the rule on direct asset holding on the balance sheet, while maintaining disclosure requirements. This would allow them to engage in “certain types of cryptocurrency activities while maintaining transparency for investors.”

Bitwise Chief Investment Officer Matt Hougan noted that Bitcoin ETFs have changed “the tone around cryptocurrency regulation” in the US.

US banks, left off key bitcoin ETF roles, are pushing SEC to tweak guidance around holding digital assets. A bank trade gp coalition sent SEC letter asking them exclude ETFs from broad crypto umbrella. They want a piece of the action. I don’t blame them, it isn’t fair.… pic.twitter.com/advPa94nK2

— Eric Balchunas (@EricBalchunas) February 15, 2024

“American banks, deprived of key roles in Bitcoin ETFs, are pushing the SEC to change rules on digital asset custody. […] They want to participate in the action. I don’t blame them, it isn’t fair,” concluded Bloomberg exchange analyst Eric Balchunas.

Earlier, CoinGecko experts reported that the US held a dominant 83.3% share of the global spot Bitcoin ETF market, valued at $41.74 billion.

Since the beginning of 2024, outflows from “gold” ETFs reached $2.39 billion, while inflows into exchange-traded funds based on the first cryptocurrency amounted to $3.89 billion.