According to Bloomberg News on September 24, following the exemption granted by the U.S. Securities and Exchange Commission (SEC), BNY Mellon has entered the crypto asset custody market, taking an important step in the BTC and Ethereum ETF custody market.
The report stated that BNY Mellon obtained an exemption from SEC Staff Accounting Bulletin No. 121 (SAB121) during a review by the Office of the Chief Accountant.
This exemption allows the bank to classify the crypto assets held by its clients differently, meaning they do not have to treat these assets as liabilities of the company.
This operational shift may enable more traditional banks to offer crypto asset custody services, which they were largely unable to do before.
This development also enables BNY Mellon to challenge Coinbase’s current dominant position in crypto asset management and further expand on the company’s ambitions in crypto asset custody.
The move to provide custody services for spot BTC and Ethereum ETFs could greatly disrupt the current market landscape, as Coinbase oversees most of Wall Street’s crypto ETFs, including those of major asset management companies such as BlackRock, which manages around $10 trillion in assets.
Currently, Coinbase’s role is positioned as the leader in digital asset custody for these fund products, but BNY Mellon’s entry may increase competition and provide customers with more choices.
Since early 2023, BNY Mellon has expressed a strong interest in the field of crypto asset custody.
In January of the same year, CEO Roman Vince emphasized during an earnings conference call that digital assets are a part of the company’s long-term strategic vision, and noted the growing demand from institutional clients for digital asset services.
Analysts estimate that the annual growth rate of the crypto asset custody market is about 30%, with a current valuation of $300 million.
If this growth trajectory continues, the market size is expected to exceed $1 billion by 2032, with an annual growth of approximately $90 million.
Despite the positive outlook, regulatory challenges remain a major concern for BNY Mellon in establishing a foothold in the crypto asset custody field.
Legislators, including Congressman Patrick McHenry and Senator Cynthia Lummis, have expressed concerns about the transparency of interactions between SEC staff and private companies.
In a letter to the SEC and other regulatory agencies, they cited private meetings allegedly discussing the SAB121 exemption.
It is currently unclear whether BNY Mellon’s exemption is part of these discussions, raising questions about the regulatory landscape of the bank’s activities in the crypto asset market.
The success of BNY Mellon will largely depend on its ability to navigate the complex regulatory environment while capitalizing on the growing demand for digital asset services from institutional investors.