Crypto Custody: Traditional Finance Enters the Fray

While crypto-native companies like Coinbase Global Inc. and BitGo Inc. have dominated the digital asset custody market, traditional financial firms have largely remained on the sidelines due to regulatory uncertainty surrounding digital assets.

Though the current custody market is estimated at only $300 million, it remains an attractive area. Companies like Fireblocks Inc. estimate annual growth rates around 30%.

Leading custody banks like BNY Mellon, State Street Corp., and Citigroup Inc. have made tentative steps into crypto custody or expressed interest. Despite setbacks, these companies are experimenting, with many plans focusing on safeguarding tokenized assets.

For example, JPMorgan Chase & Co. operates a project called Onyx, which allows blockchain payments between bank clients. In December 2022, Depository Trust & Clearing Corporation acquired Securrency, offering products for tokenized traditional financial assets. In August 2023, State Street chose Taurus as a supplier for tokenization and custody services for digital assets.

One major hurdle for established financial institutions is the U.S. SEC's rule, SAB 121, which prohibits highly regulated financial firms from offering cryptocurrency custody services. President Biden vetoed a congressional effort to overturn the rule. However, some banks have received exemptions.