BNY Mellon Launches Bitcoin, Ethereum Custody Services for Investment Firms

BNY Mellon will begin holding Bitcoin and Ethereum on behalf of its clients with software developed together with crypto depository provider Fireblocks.

The service goes live on the bank’s accounting platform today for selected securities companies, according to a report in The Wall Street Journal. This means that BNY Mellon will store clients’ private keys and provide some bookkeeping of crypto assets in their portfolios.

The bank will use compliance software from Chainalysis, including KYT (Know Your Transaction), an investigative tool to perform due diligence and another to assess transaction volumes and counterparties.

“During the process, we worked closely with market-leading fintechs, utilizing digital asset specialists Fireblocks and Chainalysis to integrate their technology to meet the current and future security and compliance needs of clients across the digital asset space,” BNY spokesperson Mellon. Steve LaMarca narrated Decrypt in an email.

He said that clients who have accounts on the bank’s platform will be able to hold only digital assets, if they choose, and that the bank will add support for more crypto assets “based on customer demand, commercial opportunities and regulatory guidance.”

It’s the latest, and perhaps biggest, advance in the US crypto market from the nation’s oldest bank.

BNY Mellon and crypto

In February 2021, BNY Mellon announced plans to eventually hold crypto on behalf of its clients. A month later, the bank launched a Bitcoin custody service in Ireland – to the dismay of Ireland’s central bank officials.

In March, BNY Mellon became the custodian of the cash reserves backing Circle’s stablecoin, USD coin. And in February, the bank announced it had begun using Chainalysis compliance software, noting at the time that it was a precursor to an eventual custody service.

“Chainalysis has always believed that financial institutions are critical to the overall growth and success of the cryptocurrency industry,” Chainalysis co-founder and chief security officer Jonathan Levin said in a statement.

BNY Mellon currently has $43 trillion worth of assets under custody and another $2 trillion under management, according to its second-quarter earnings report. Acting as custodian, the firm’s primary business, usually involves providing less active allocation or financial advice.

The bank formed its new digital assets unit in February last year, saying it would “accelerate the development of enterprise solutions to serve the rapidly evolving digital asset space”.

Last April, Fireblock CEO and co-founder Michael Shaulov spoke about the difficulties of developing a crypto custody solution on the BNY Mellon Perspectives podcast.

While SWIFT, an international financial services network, can take two or three days to settle a transaction – thus giving analysts plenty of time to verify it – crypto transactions are settled in seconds or minutes. That means crypto managers face two main problems, he said.

“One is really how you secure that private key at rest, because that’s essentially what guarantees you that, you know, you go to sleep with 100 Bitcoin in that wallet, and you wake up with 100 Bitcoin still there.” Shaulov said on the podcast. “And the other problem, which I think a lot of people don’t really think about in this context, is that ultimately the hardest part is making sure you transfer it to the right place.”

Tuesday’s news makes BNY Mellon one of several Wall Street stalwarts to announce crypto news amid the bear market.

In August, BlackRock launched a spot Bitcoin private trust for its US-based institutional clients and announced a partnership with Coinbase Prime. Last month, Nasdaq said it is working on its own institutional crypto custody service, and Fidelity said it may offer Bitcoin to its retail investors.

Editor’s note: This article was updated after publication to include comments from a BNY Mellon spokesperson.