As an analyst with over two decades of experience in the financial industry, I have seen my fair share of regulatory favoritism towards established players. The recent move by BNY Mellon to offer custodial services for crypto ETFs seems to be another example of this trend, albeit in a rapidly evolving and highly innovative sector such as cryptocurrency.
Financial titan BNY Mellon is edging closer to providing custody services for ETFs based on cryptocurrencies. According to a recent announcement, the firm will now be able to safeguard Bitcoin (BTC) and Ethereum (ETH) assets for its exchange-traded clients. However, crypto industry experts like SEC Commissioner Hester Pierce argue that BNY Mellon is receiving preferential treatment, while other regulated financial institutions are being discouraged from offering similar cryptocurrency custody services by the Federal Reserve.
Why is the US SEC Favoring BNY Mellon?
According to CoinGape’s recent report, the U.S. Securities and Exchange Commission (SEC) has granted approval for Bank of New York Mellon to provide cryptocurrency custody services. This decision exempts certain Sarbanes-Oxley Act (SAB 121) accounting rules that are specifically relevant to crypto custodians.
There’s been a significant disagreement among cryptocurrency enthusiasts about this recent development. Caitlin Long, who is the CEO of a bank that supports cryptocurrencies (Custodian Bank), has publicly criticized this unfair treatment. In response to BNY Mellon’s intention to provide custody services for crypto ETFs, Long expressed her concerns about the Federal Reserve’s position on digital assets, highlighting what she sees as a contradiction in their approach.
She further added that while the Fed warns of systematic risks posed by digital assets, it continues to allow top banking players to enter the space. “It’s how the U.S. system works,” she remarked.
BUT OF COURSE. While the Fed screams about the systemic risk of digital assets, it lets a *systemically important bank* get into the business. You literally can’t make this up. It’s how the US system works, folks.
— Caitlin Long (@CaitlinLong_) September 24, 2024
At Tuesday’s Gary Gensler hearing, SEC commissioner Hester Pierce discussed preferential treatment by the securities regulator. She stated that the agency is permitting certain entities an exemption from the SAB 121 guidelines, which typically prevent financial institutions under regulation from holding Bitcoin and other cryptocurrencies in custody. Just a week prior, Congressman Ritchie Torres raised concerns about the SEC allegedly abusing SAB 121 for their advantage.
Coinbase to Face Competition in Crypto Custody
In light of the current tightening of regulations towards cryptocurrency storage providers such as Silvergate Bank, it’s worth noting that Coinbase stands out as one of the few entities providing these services. This situation has sparked discussions about whether the Securities and Exchange Commission (SEC) might be inadvertently concentrating control over crypto custody.
As BNY Mellon joins the fray, Coinbase can expect some new contenders emerging in their path. This prominent U.S. banking institution has been expressing interest in the cryptocurrency sector since January 2023. Notably, it already backs close to 80% of the Bitcoin and Ether exchange-traded funds (ETFs) approved by the U.S. Securities and Exchange Commission (SEC) for its investment services. Given this high demand, BNY Mellon is now aiming to tap into the digital asset custody business.
Coinbase is a significant custodian working with prominent clients such as BlackRock for their cryptocurrency ETFs. In his recent interview, Robbie Mitchnick, head of digital assets at BlackRock, stated that there haven’t been any major changes on their end regarding custodial service providers. Nevertheless, he emphasized that they would make adjustments as the industry adapts and grows over time.
In light of the growing attention on cryptocurrency ETF custody, Robbie Mitchnick, head of digital assets at BlackRock, asserts that “there hasn’t been any major shift” or “significant developments” have taken place.
— Bloomberg Crypto (@crypto) September 24, 2024
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2024-09-25 08:56