The landscape of cryptocurrency custody is undergoing a significant transformation as US Bancorp has officially relaunched its bitcoin custody service. This move marks the first time in three years that a traditional banking institution has re-entered the digital asset space, following a period of uncertainty caused by regulatory challenges.
US Bancorp, based in Minneapolis, initially launched its bitcoin custody program in 2021 but quickly suspended it due to an adverse accounting guidance from the Securities and Exchange Commission (SEC) in early 2022. This guidance classified bitcoin holdings as full balance sheet liabilities for banks, making it financially unfeasible for them to offer custody services.
However, with the recent changes in the regulatory landscape, particularly under the current administration’s pro-crypto stance, US Bancorp is now able to revamp its bitcoin custody offering. The SEC’s repeal of the restrictive guidance has provided banks with the opportunity to resume custody services without the heavy capital burdens that previously rendered such services unmanageable.
Stephen Philipson, head of wealth, corporate, commercial, and institutional banking at US Bancorp, emphasized the importance of having a bank-owned provider in this evolving marketplace. He indicated that this stability and strong financial foundation provide clients with greater confidence as they navigate the complexities of cryptocurrency investments.
The timing of US Bancorp’s re-entry could coincide strategically with the recent surge in demand for bitcoin exchange-traded funds (ETFs). The bank’s service is particularly aimed at institutional investment managers dealing with registered or private funds, and it will specifically cater to the growing market for bitcoin ETFs. Since the SEC approved spot bitcoin ETFs in January, multiple asset managers have launched funds tracking bitcoin’s price, with BlackRock’s iShares Bitcoin Trust alone reaching over $80 billion in market capitalization.
Currently, Coinbase dominates the custody market for spot bitcoin ETFs, serving more than 80% of crypto ETF issuers. US Bancorp’s entry introduces significant competition from a traditional banking perspective, potentially meeting institutional clients’ needs for regulatory familiarity and financial stability.
In a strategic partnership, US Bancorp has teamed up with NYDIG, a prominent bitcoin custody and financial services provider. This collaboration adopts a hybrid model in which NYDIG safeguards the bitcoin assets while US Bancorp takes on the client-facing role. This arrangement could serve as a blueprint for other traditional banks looking to venture into the crypto custody space without incurring the heavy costs of establishing their own in-house infrastructure.
This model also directly addresses the hesitancy some institutional investors feel about engaging with solely crypto-native firms. By having a well-established bank handle the primary relationship, these investors gain an added layer of regulatory assurance, which may enhance the overall acceptance of cryptocurrency investments within institutional portfolios.
As the credibility of traditional financial institutions in the cryptocurrency space continues to grow, US Bancorp’s renewed commitment to bitcoin custody could signal a significant shift in how banks approach the integration of digital assets into their service offerings.
