U.S. Bank has reintroduced its bitcoin custody service aimed at institutional investment managers, partnering with NYDIG to act as sub-custodian for this initiative. The service first launched in 2021 but was temporarily halted in the wake of a Securities and Exchange Commission (SEC) bulletin that created stricter capital requirements for banks holding clients’ cryptocurrency. However, recent regulatory adjustments have allowed U.S. Bank to resume the program.
The bulletin, known as Staff Accounting Bulletin 121, was one of several pieces of guidance lifted by financial regulators since the beginning of the current presidential administration. In March, the Office of the Comptroller of the Currency also issued a notice clarifying that banks could engage in certain crypto activities, further paving the way for U.S. Bank to reactivate its bitcoin custody service.
According to Laura Cote, the head of global fund services product at U.S. Bank, the bank was able to quickly reinstate the service since it had already received prior approvals. The bank reviewed its earlier processes and made necessary updates, particularly regarding exchange-traded funds (ETFs) that were not permitted to hold bitcoin during the initial launch.
The landscape for bitcoin ETFs has changed dramatically, with the debut of spot bitcoin ETFs in early 2024. U.S. Bank has reported notable growth in its ETF business, now servicing 33 bitcoin funds and an additional 15 funds that operate under digital asset strategies. Overall, the bank manages 24% of the 4,300 U.S.-listed ETFs, emphasizing its strengthened presence in this evolving market.
The rise of bitcoin ETFs represents a significant shift from the asset being primarily held by retail investors. As of September 3, these ETFs collectively hold 6.16% of all bitcoin in circulation, translating to a market value exceeding $144 billion. This trend indicates a growing institutional interest in digital assets, according to a study by the Digital Chamber, a crypto trade organization.
U.S. Bank’s decision to focus on custody solutions for institutional clients rather than individual investors is driven by market demand. Cote noted that these institutional managers have shown readiness in adopting bitcoin, with many currently holding custody through platforms like Coinbase.
While individual client demand for bitcoin custody has not yet surged, Cote remains optimistic about potential growth as bitcoin continues to gain traction.
NYDIG, which resumes its role as custodian in this iteration of the service, emphasized its commitment to bridging traditional financial systems with the digital economy. CEO Tejas Shah stated that the partnership aims to provide clients with secure access to bitcoin, underscoring the importance of safety and regulation in financial services.
