What BNY Mellon’s digital asset custody launch means for the crypto market

Published Thu, Oct 13 20221:12 PM EDT

The crypto industry this week cleared a massive hurdle for attracting big investors after BNY Mellon said it's officially holding crypto assets in its custody for institutions. If the current market and regulatory environment weren't so bad, a wave of new investors might now be flooding into the crypto market. Still, when things improve, the oldest bank in America will be there to facilitate all that new activity — and perhaps even a new bull run. Custody, the business of holding clients' securities for safekeeping, is probably one of the least sexy topics in the wild world of crypto, but it's been a sticking point for institutional investors wanting even a little bit of exposure to it. "Some of those institutions are deciding whether to move forward and put money in digital assets and having some brand names that have been providing custody for 225-plus years will give many of them the reassurance that it's a safe space to enter," said Adam Sporn, head of prime brokerage and U.S. institutional sales at BitGo. Crypto trading by institutional investors has been held back by their inability to do so with an incumbent custody bank, according to 70% of international asset managers, pensions, endowments, insurance providers and hedge funds that responded to a BNY Mellon sponsored study issued by Celent. In the same report, 72% said the convenience of a one-stop shop service provider is more important than a lesser-known but specialized provider. "For them to get into crypto in a meaningful way, they'd like to see a name that they recognize offering the service," Mike Demissie, head of digital assets and advanced solutions at BNY Mellon, told CNBC. Additionally, "they want to have that integrated offering from a service provider that knows what it means to offer it at scale, knows what it needs to be regulatory compliant, knows your personal needs." Who are the institutions? What do they want? The drumbeat for institutional investment in crypto has been getting louder , even in the current bear market. For years, crypto natives wondered when financial incumbents would warm to the new asset class. The mood finally began to change in early 2021 and enthusiasm has recently been ramping up. Also, Google announced earlier this week it would explore using Coinbase's service for storing and trading cryptocurrencies. In the past month, Nasdaq has launched crypto custody for institutions and Franklin Templeton, Betterment, Société Générale and other wealth managers have made forays into crypto. In August, BlackRock began allowing its clients to buy bitcoin . "A common question I get it: now that the price has gone down, this interest abated? It's quite the contrary, actually," Demissie said. "There's a sustained demand, they're launching new products that can provide exposure – some of these institutions actually have end investors on their side – and they're going to continue in the space despite the downturn." Firms with assets under management in the $500 billion to $1 trillion range indicated they're currently allocating between 23% of their portfolio on average to crypto and could see that increasing to 33% in two to five years, survey data showed. For many of them, Demissie said, crypto is a long game. Even though for many others, bitcoin has become a "boring" macro-driven asset with little utility, BNY Mellon clients have been looking beyond crypto's speculative nature. "We think of them as assets, not currencies," he said. "You've got crypto assets, digital cash, stablecoins and then you have tokenized assets. Not all of them are at the same level of maturity but there's a common theme in terms of the underlying technology: you being able to use it to seamlessly transfer."