Leading banks have long held valuable objects on behalf of their users – from jewels to shares. Now, well due to the new policy by a federal banking regulator, they will be able to hold crypto-assets like Bitcoin [BTC] too.
The new policy is about to call at a letter revealed recently on Wednesday by the OCC [Office of the Comptroller of the Currency]. The letter, addressed to an anonymous bank, adding that national banks and savings associations can engage in so-called custody services for their users.
The news is vital as the regulatory uncertainty has so far led the leading banks to avoid Bitcoin. What’s more, the bylaws of the many big investment funds, along with pension funds, oblige them to park clients’ money only with federally chartered banks. According to the research group Coin Center notes, this amounts to a de facto ban on crypto assets.
The upshot is that big banks now have a green light to open cryptocurrency-related operations. If they proceed with so, they will now likely begin by focusing on the custody services, that so far are the purview of cryptocurrency-focused firms along with Coinbase & BitGo.
Custody is vital within the cryptocurrency ecosystem as assets like Bitcoin are entirely digital, making them easy to steal. Being a custodian entails storing the so-called private key that gives access to a given digital wallet.
As the OCC adds within its letter, banks already offer to safeguard other digital items on behalf of their clients. This includes offering “secure web-based document storage, retrieval, & collaboration of documents and files containing personal data.”
Custody of cryptocurrency also has the potential to be a lucrative line of business, as long as the market capitalization of Bitcoin is around $170 Bln, and that the custodians typically charge fees of around 0.25% to keep it secure.
The OCC letter also opens the door for banks to offer more exotic services like “staking” – a sort of proxy voting for certain crypto assets & crypto lending. Such activity is small within the context of the broader economic system but has become increasingly important within the crypto industry.
All of this raises the question of whether banks will seek to form their own cryptocurrency divisions or seek to accumulate a number of the various cryptocurrency startups operational within the United States.
Within the meantime, one influential cryptocurrency entrepreneur, Barry Silbert – who operates the massive conglomerate called Digital Currency Group – took to Twitter to precise his pleasure with Wednesday’s development.