BNY Mellon Bank begins holding crypto for investors
Cryptocurrency is coming to America’s oldest bank in what experts are calling a major milestone that adds an “aura of legitimacy” to the crypto industry.
Bank of New York Mellon said select customers can now hold and transfer bitcoin and ether through the bank’s platform, according to a recent press release. This makes BNY Mellon the first major US bank to handle cryptocurrencies in a similar way to stocks and bonds, according to Wall Street Journal, who first reported the news. The bank will store customers’ crypto keys and offer some of the bookkeeping services to fund managers that it does for their other financial assets.
Major players in the traditional financial space have long expressed skepticism, and sometimes even hostility, when it comes to cryptocurrency. For example, Jamie Dimon, CEO of JP Morgan Chase, has called bitcoin “worthless” and a “fraud.” Securities and Exchange Commission Chairman Gary Gensler and Treasury Secretary Janet Yellen have pointed to crypto’s dangers many times.
There is good reason to be hesitant about cryptocurrencies like bitcoin – which has sunk to around $20,000 per coin after soaring to close to $68,000 late last year – including a lack of clear regulation and guidance around the market.
But firms cannot deny that customers want more access to crypto. BNY Mellon, which first shared its plans to hold and transfer cryptocurrencies for clients back in 2021, has taken note.
The move is a “strong indication that we are moving to a place where cryptoassets will be treated more like other assets,” said Julie Hill, a professor at the University of Alabama School of Law and an expert on financial institution regulation.
What BNY Mellon’s crypto news means
BNY Mellon is a custodian bank, which means that it holds assets such as stocks, bonds and alternative assets and provides operations related to these assets for its clients. The crypto offering is for selected institutional investors (think pension funds and hedge funds, not regular investors like you and me).
By adding digital assets to the portfolio of assets banks hold, customers can invest in crypto in much the same way as traditional assets, Hill says. Customers do not need to go to another company they are not familiar with to manage their crypto; they can work with a bank that can be their long-term partner, she adds.
BNY Mellon’s entry into the space is notable because the bank is primarily a financial institution, not a cryptocurrency company, said James Wester, director of cryptocurrency and co-head of payments at Javelin Strategy and Research.
“They have a deep understanding of risk and compliance,” he adds. “They bring a seriousness to the market as well as cryptocurrency as a new asset class.”
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What this means for crypto adoption
BNY Mellon’s move is an intersection between decentralized finance and traditional finance, and a sign of how the two financial ecosystems are likely to become increasingly intertwined as crypto becomes mainstream, said Eswar Prasad, a professor at Cornell University and author of The future of money.
“This development highlights how banks and other financial institutions are beginning to meet customer demands for more products and services related to custody and trading of cryptoassets,” says Prasad. “The willingness of banks to provide such services will lend an aura of legitimacy to cryptoassets and facilitate their wider adoption.”
BNY Mellon’s news is just the latest example of institutional investors seeing the value of decentralized finance technologies, said John Wu, president of Ava Labs, which is backing the development of the public blockchain Avalanche. He also points out that BlackRock has recently partnered with Coinbase to allow institutional investors to trade and manage bitcoin, and investment management firm KKR is putting part of a fund on the Avalanche blockchain.
“In a previous cycle, one of these would be the defining moment for institutional adoption of crypto,” Wu says. “Institutional momentum is very real, and at this point underappreciated.”
The move also puts some weight behind cryptocurrency as an asset class.
“There’s still a misconception that crypto is just drug money or money laundering or trafficking,” says Lamont Black, associate professor of finance at DePaul University and a former Federal Reserve economist. “This also legitimizes the asset class in an important way.”
Javelin Strategy’s Wester adds that BNY Mellon’s decision shows that institutions are taking crypto seriously as financial tools.
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What this means for crypto investors
BNY Mellon is a leader in the institutional financial space, not in retail. But the fact that institutional investors are able to increase their crypto holdings through BNY Mellon could set a precedent that affects smaller institutions that work with retail investors, Black says.
“Other institutions can now point to the Bank of New York Mellon as an example of a highly regulated institution now playing in the crypto space,” says Black. This can then create more opportunities for retail investors.
But the extent to which banks can offer services related to cryptocurrencies and digital assets is still an open question, says Hill. People will look at BNY Mellon’s business model for institutional investors to see if it involves excessive risk, she says.
If it doesn’t, we’ll likely see other market players focusing on non-institutional investors – aka you and me.
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