Bny Mellon’s crypto custody move could disrupt Coinbase’s ETF dominance

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BNY Mellon is moving closer to offering custody services for Bitcoin and Ether held by ETF clients, according to a report by Bloomberg. BNY Mellon’s entry into the crypto custody market could challenge the dominance of Coinbase, which currently handles most US spot Bitcoin ETFs, including BlackRock.

The bank’s progress comes after a review by the SEC’s Office of the Chief Accountant. The review did not object to BNY Mellon’s determination that hedging crypto assets for its regulated exchange-traded product clients should not be recognized as a balance sheet liability.

This ruling allows BNY Mellon to move forward without the burden of accounting for these digital assets on its balance sheet, overcoming a significant hurdle in offering crypto custody services.

In addition, the SEC granted BNY Mellon an exemption from SAB 121, a rule that typically requires banks to recognize cryptocurrency-related assets on their balance sheets. The exemption allows BNY to expand its digital asset services without the regulatory constraints that have limited other institutions.

According to the Bloomberg report, the crypto custody market is currently valued at around $300 million and is growing at around 30% annually. Custodians of digital assets can charge significantly higher fees than traditional assets due to the increased security risks associated with cryptography.

BNY Mellon has been public about its interest in the digital asset space since at least January 2023, when CEO Robin Vince referred to digital assets as the bank’s “longest play.” BNY Mellon already supports 80% of SEC-approved Bitcoin and Ether exchange-traded products through its fund services business, giving it a strong foundation to capitalize on the crypto custody market as it grows.

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