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Published: Oct 17, 2022 7 min read

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Sign of BNY Mellon on the building in Pittsburgh

Cryptocurrency is coming to the oldest U.S. bank in what experts are calling a major milestone that adds an "aura of legitimacy" to the crypto industry.

Bank of New York Mellon said select clients can now hold and transfer bitcoin and ether via the bank's platform, according to a recent news release. This makes BNY Mellon the first large U.S. bank to safeguard cryptocurrencies in a similar fashion to stocks and bonds, according to The Wall Street Journal, which first reported the news. The bank will store clients' crypto keys and offer some of the bookkeeping services to fund managers that it does for their other financial assets.

Major players in the traditional finance space have long expressed skepticism, and sometimes even hostility, when it comes to cryptocurrency. J.P. Morgan Chase CEO Jamie Dimon, for example, has called bitcoin "worthless" and a "fraud." Securities and Exchange Commission chairman Gary Gensler and Treasury Secretary Janet Yellen have pointed out crypto's dangers many times.

There's good reason for hesitation around cryptocurrencies like bitcoin — which has sunk to around $20,000 per coin after skyrocketing to near $68,000 late last year — including a lack of clear regulation and guidance around the market.

But firms can't deny that clients want more access to crypto. BNY Mellon, which first shared its plans to hold and transfer cryptocurrencies for clients back in 2021, has taken note.

The move is a "strong indication that we're moving to a place where crypto assets will be treated more like other assets," says Julie Hill, professor at the University of Alabama School of Law and expert on financial institution regulation.

What BNY Mellon's crypto news means

BNY Mellon is a custodian bank, meaning that it holds assets like stocks, bonds and alternative assets and provides operations related to those assets for its customers. The crypto offering is for select institutional investors (think pension funds and hedge funds, not everyday investors like you and me).

By adding digital assets to the portfolio of assets the bank custodies, customers can invest in crypto in a lot of the same ways they can traditional assets, Hill says. Customers won't have to go to another company they're not familiar with to manage their crypto; they can work with a bank that may be their longtime partner, she adds.

BNY Mellon's entrance into the space is notable because the bank is first and foremost a financial institution, not a cryptocurrency company, says James Wester, director of cryptocurrency and co-head of payments at Javelin Strategy & Research.

"They have a deep understanding of risk and compliance," he adds. "They bring a seriousness to the market as well as cryptocurrency as a new asset class."

What this means for crypto adoption

BNY Mellon's move is an intersection of decentralized finance and traditional finance, and a sign of how the two financial ecosystems are likely to get increasingly intertwined as crypto goes mainstream, says Eswar Prasad, a professor at Cornell University and author of The Future of Money.

"This development highlights how banks and other financial institutions are beginning to address customer demands for more products and services related to custody of and trade in crypto assets," Prasad says. "The willingness of banks to offer such services will add an aura of legitimacy to crypto assets and facilitate their wider adoption."

BNY Mellon's news is just the latest example of institutional investors seeing the value of decentralized finance technologies, says John Wu, president of Ava Labs, which supports the development of the Avalanche public blockchain. He also points to BlackRock recently partnering with Coinbase to allow institutional investors to trade and manage bitcoin, and investment management firm KKR putting a portion of a fund on the Avalanche blockchain.

"In a previous cycle, any one of these would be the defining moment for institutional adoption of crypto," Wu says. "Institutional momentum is very real, and at this point, underestimated."

The move also puts some weight behind cryptocurrency as an asset class.

"There's still this misperception that crypto is just drug money or money laundering or trafficking," says Lamont Black, associate professor of finance at DePaul University and a former Federal Reserve economist. "This also kind of legitimizes the asset class in an important way."

Javelin Strategy's Wester adds that BNY Mellon's decision shows institutions are taking crypto seriously as financial tools.

What this means for crypto investors

BNY Mellon is a leader in the institutional financial space, not in the retail space. But the fact that institutional investors are able to increase their crypto holdings through BNY Mellon could set a precedent that impacts smaller institutions that do work with retail investors, Black says.

"Other institutions can now point to Bank of New York Mellon as being an example of a highly regulated institution that is now playing in the crypto space," Black says. That might then create more opportunities for retail investors.

But the extent to which banks can provide services related to cryptocurrencies and digital assets is still an open question, Hill says. People will be watching BNY Mellon's business model for institutional investors to see if it involves excessive risk, she says.

If it doesn't, we'll likely see other market entrants that focus on non-institutional investors — aka you and me.

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