BNY Mellon Joins Bitcoin ETF Custody Market: Is Coinbase At Risk?

• BNY Mellon has entered the Bitcoin ETF custody market.
• There is growing speculation that other major banks might follow suit.
• This move positions the bank to compete directly with Coinbase Custody.

BNY Mellon, the largest custodian bank in the U.S., is poised to introduce a Bitcoin Exchange-Traded Fund (ETF) custody service. Once operational, this service will compete with Coinbase Custody for spot Bitcoin ETF issuers.

This new Bitcoin ETF custody service will enable BNY Mellon to cater to institutional investors. Thereby, it will broaden its presence in the cryptocurrency market.

Overview of BNY Mellon’s Bitcoin ETF Custody Service

Per the Bloomberg report, the US SEC review permits BNY Mellon to exclude digital assets from being listed as a balance sheet liability.

“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,”

BNY Mellon started its digital asset custody service in October 2022. The bank aimed to handle crypto-like traditional assets, which aren’t listed on its balance sheet. However, the bank faced issues with the SEC’s Staff Accounting Bulletin (SAB) 121.

SAB 121 requires companies holding crypto assets to list them on their balance sheets and create a liability equal to their value. The crypto industry has criticized this rule as too restrictive.

Despite this, BNY Mellon seems to have found a solution, with the SEC not objecting to their crypto custody plans. This service could mark a significant step for the institutional use of cryptocurrencies. This shows that Bitcoin and other digital currencies are being recognized as legitimate financial tools.

Is trust eroding between BlackRock and Coinbase?

BNY Mellon’s crypto ETF custody market entry could challenge Coinbase’s dominance. Currently, Coinbase provides custodian services for most U.S. spot Bitcoin ETF issuers, including the largest, BlackRock.

However, there are concerns about Coinbase’s custody practices. Some investors worry that Coinbase is buying “paper BTC” or IOUs for Bitcoin ETF issuers. This might keep Bitcoin’s price down and suppress its potential.

Despite increased investments in Bitcoin ETFs, Bitcoin’s price has remained stagnant over the past three months. It supported these concerns.

In response to these issues, BlackRock has filed an amendment with the SEC to change its Bitcoin ETF structure. This amendment requires Coinbase to process Bitcoin withdrawals within 12 hours of receiving an instruction.

If these issues persist, ETF issuers might consider switching to other custody service providers.

Are More Banks Geared to Challenge Coinbase’s Crypto Custody Dominance?

Speculation is growing that the SEC’s exemption might encourage more traditional banks to enter the cryptocurrency market. This aligns with BNY Mellon CEO Robin Vince’s comments about the bank’s plans to take a more active role in digital assets.

Interestingly, major banks like Wells Fargo and J. P. Morgan have already invested in Bitcoin ETFs. Wells Fargo holds 37 shares of the ProShares Bitcoin Strategy ETF (BITO). On the other hand, J. P. Morgan has invested $731,246 in Bitcoin ETFs from BlackRock, Bitwise, Fidelity, and Grayscale.

The interest from these banks in crypto investment products is likely to attract new investors. Therefore, it’s not far-fetched to think that more banks might join BNY Mellon in challenging Coinbase’s dominance.

Disclaimer

In this article, the views, and opinions stated by the author, or any people named are for informational purposes only, and they don’t establish the investment, financial, or any other advice. Trading or investing in cryptocurrency assets comes with a risk of financial loss.