How US Banks Are Dipping Their Toes in the Crypto Water

Representations of cryptocurrencies Bitcoin, Ethereum, DogeCoin, Ripple, Litecoin are placed on PC motherboard in this illustration taken, June 29, 2021. Dado Ruvic/Reuters

Last week, a top U.S. banking regulator warned of growing risks as banks start to capitalize on the popularity of cryptocurrencies to offer related services to clients.

Here is how some of the biggest banks operating in the United States have gotten involved in crypto:

Custody Services

Bank of New York Mellon announced in February 2021 that it would hold, transfer and issue bitcoin for asset management clients, one of the first announcements of its kind for a major Wall Street bank. The launch is expected later this year.

Clients will be able to store bitcoin and ether, the two largest cryptocurrencies, in BNY Mellon crypto wallets, which will be created in partnership with crypto infrastructure company Fireblocks.

U.S. Bancorp went live in October with bitcoin custody services. Bitcoin company NYDIG is acting as a sub-custodian for the bank. The services are geared toward institutional investment managers with private funds.

State Street Corp in March said it intends to offer cryptocurrency custody services in partnership with crypto infrastructure platform Copper.co, although it cautioned that the offering was subject to regulatory approval.

Meanwhile, Deutsche Bank quietly revealed plans to develop a service to hold and trade cryptocurrencies for institutional investors in a 2020 report published by the World Economic Forum, adding it had already completed a proof of concept.

Also in 2020, BNP Paribas completed a proof of concept with crypto wallet provider Curv to develop a secure method to transfer tokenized securities. It said the development was a step toward creating an integrated custody solution for both traditional and digital assets.

Deutsche Bank and BNPP did not provide an update on these projects when contacted by Reuters.

Wealth Management

A slew of big banks began offering wealth management clients exposure to crypto in 2021, with Morgan Stanley leading the pack. CNBC reported in March that Morgan Stanley was enabling access to three bitcoin funds for clients with at least $2 million in assets held at the bank.

In July, JPMorgan Chase & Co allowed its financial advisers to accept buy and sell orders from its wealth management clients for five cryptocurrency products, according to Business Insider.

Wells Fargo & Co also began offering its wealthy clients cryptocurrency exposure in the summer of 2021, as did State Street.

JP Morgan and Wells Fargo both registered private bitcoin funds in partnership with NYDIG in August.

Citigroup Inc’s wealth management unit created a digital assets group in June to facilitate investments in cryptocurrencies, stablecoins, non-fungible tokens, and central bank digital currencies, according to media reports.

In March of this year, regulatory documents revealed that Goldman Sachs is offering wealthy clients access to an ethereum fund through crypto company Galaxy Digital.

Trading

In March 2021, Goldman rebooted its cryptocurrency trading desk after mothballing it in 2019. That team, which sits within the bank’s Global Markets division, deals bitcoin futures and nondeliverable forwards, a derivative that allows the bank’s clients to take a view on bitcoin’s future price.

In March of this year, Goldman Sachs went a step further and became the first major U.S. bank to carry out an over-the-counter crypto trade in partnership with Galaxy Digital, a crypto-focused asset manager.

Bank of America in July 2021 green-lit trading bitcoin futures for certain clients through a partnership with CME Group Inc, according to a report from CoinDesk. Bank of America declined to comment on the report, but said in a statement that it was “currently considering strategies related to cryptocurrency and other digital assets.”

Citigroup said last August the bank was considering offering bitcoin futures trading for some institutional clients, although media reports said the bank was awaiting regulatory approval. Citi had no immediate comment. IFR reported in December that Citi had recently cleared its first bitcoin futures trade through CME Group.

PNC Financial Services Group is also waiting for the OK from regulators to allow its customers to trade crypto.

Research Coverage

Banks are also plowing money into research.

Bank of America kicked off digital assets research coverage for clients in October.

Morgan Stanley stood up a new crypto research division in September, in what the bank said was a recognition of the “growing significance of cryptocurrencies ... in global markets.”

Citigroup in November said it was looking to create this year 100 new roles focused on digital assets, including blockchain and digital currencies, at its institutional division.

By Hannah Lang

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