BNY Mellon to Offer Crypto Custody, Bridge Generation Gap

Fidelity might have been the first institution to the crypto custody game, but if recent events are any indicator, BNY Mellon’s announcement from late last week could turn out to be one of the most bullish drivers the market has had in a while. Crypto is often cited as, and viewed by many, as a millennial asset class.

Although far from not being cross-generational, cryptocurrencies have continued to appeal to a younger demographic that has had an easier time learning about and obtaining them. BTC’s move past $50,000 over the last couple of days suggests that market participants might be looking to BNY Mellon to bridge the gap and bring another generation of crypto investors onboard.

BNY Mellon: the oldest of old school banks

The bank will do more than simply narrow the crypto gap between generations, of course. Founded by Alexander Hamilton in 1784, BNY Mellon ranks as America’s oldest private bank. In 1792, two dozen stockbrokers met under a buttonwood tree in Manhattan to form the New York Stock Exchange. The Bank of New York was the first stock ever traded on America’s first stock exchange. In 1804, BNY became the depository for the nation’s first trust (established by Hamilton to provide for his family after his death).

Romantic as all these historical firsts are, it would be a mistake to think of BNY Mellon as a bunch of old men in powdered wigs and funny hats. In 1955, they were among the first national banks to use a computer. That computer didn’t just sit in a corner gathering dust, either, because in 2000, they were the first bank to trade securities over the internet. Clearly that legacy of early adoption lives on in today’s BNY Mellon.

They’re not just the oldest ‑ BNY Mellon is also the tenth largest bank in America (as of December 2020), directly managing $2.2 trillion in assets while offering administration for another $41.1 trillion.

So why crypto, why now? Aren’t there enough banks with big crypto plans?

Transformation and innovation

BNY Mellon’s CEO Todd Gibbons explains the bank’s culture like this:

A spirit of transformation and innovation has been in our DNA for 236 years and, now more than ever, we must continue to drive an aggressive agenda.

He briefly expanded upon the decision to move into crypto custody by stating, “Top executives started asking to treat digital assets as they would their other holdings.”

We’ve discussed skyrocketing crypto adoption among big corporations quite a lot. One of the main barriers to entry has been on the banking side. Fortune 500 CFOs are hesitant to make moves into assets that complicate their balance sheets or require new rounds of negotiations and contracts with a different financial institution. So when a financial sector heavyweight like BNY Mellon gives crypto the nod, suddenly all their customers who were crypto-curious will now be able to buy and sell digital currencies. It’s a huge step forward for institutional crypto adoption.

And, thanks to the network effect we’ve discussed before, each time a new bank offers crypto custody, it makes crypto adoption easier for every other company. It’s a self-reinforcing virtuous cycle of crypto adoption.

There are already crypto banks ‑ why does this matter?

Hank Holland, founder and managing partner of private equity firm Pegasus Growth Capital and former managing director of Merrill Lynch, spoke to Cointelegraph about why the announcement is of particular importance. For starters, BNY Mellon will provide easy access to crypto storage for investors wanting an alternative to self-custody, something that many consider to be one of the biggest obstacles in the way of broad adoption. Furthermore, BNY Mellon is one of the largest custodians for registered investment advisors – a demographic we’ve already reported that’s eager to add cryptocurrencies to their offerings (as well as their own savings).

Crypto custody is a requirement for the bank’s portfolio managers can recommend digital currencies to clients and earn an advisory fee. Holland expects this to be the initial method of exposure to crypto for BNY Mellon’s clients, although they could soon look for more advanced crypto financial instruments such as borrowing and staking.

Same as online payments processors, analysts believe that large banks and financial institutions will feel competitive pressure to unroll their own crypto custody services within two years at most. Early reports state that BNY Mellon is aiming to launch a new platform for its crypto services, one that will make it possible for crypto assets to be combined with traditional classes such as stocks and Treasuries. So their customers can manage all their assets side-by-side, vastly increasing accessibility and ease of use.

Good news for BNY Mellon is better news for BTC

BTC has had no shortage of good news coming its way as of late, with payments processors, credit card issuers and even auto manufacturers looking to get a slice of the crypto pie. Given that investors across all age groups still face difficulties when it comes to entering the crypto sphere, however, the announcement that a banking household name is looking to wholly adopt the asset class stands out as one of the highlights.

Besides the likelihood of greatly increasing crypto exposure, it will also be interesting to watch BNY Mellon’s crypto custody solution force other private banks to roll out their own solution.

When it comes to banks and BTC, we say, the more, the merrier.