BNY Mellon is taking significant steps toward entering the crypto custody market, particularly for Bitcoin and Ethereum exchange-traded funds (ETFs), after securing an exemption from the SEC, Bloomberg News reported on Sept. 24.

According to the report, BNY Mellon received an exemption from the SEC’s Staff Accounting Bulletin 121 (SAB 121) during a review by the Office of the Chief Accountant. This exemption allows the bank to classify customer crypto holdings differently, meaning they do not need to categorize these assets as corporate liabilities.

This operational change could empower more traditional banks to provide crypto custody services, a practice that has largely remained inaccessible to them until now. The development also sets BNY Mellon up to challenge Coinbase's current dominance in crypto asset management and builds on the firm's crypto custody ambitions .

Disruption

The move to offer custodial services for spot Bitcoin and Ether ETFs could significantly shake up the current market dynamics, where Coinbase manages most of Wall Street's crypto ETFs, including those for major asset managers like BlackRock , which controls around $10 trillion in assets.

Currently, Coinbase's dominant position in digital asset custody for these funds might face increased competition as BNY Mellon's entry offers clients a wider range of choices.

BNY Mellon has shown a strong interest in the crypto custody sector since early 2023. In January of that year, CEO Robin Vince highlighted digital assets as part of the firm's long-term strategic plan during an earnings call, emphasizing the growing demand for digital asset services among institutional clients.

Analysts predict that the crypto custody market is expanding at a rate of approximately 30% per year, currently valued at $300 million. If this growth trend continues, the market could exceed $1 billion by 2032, with an annual increase of roughly $90 million.

Regulatory hurdles

Despite the promising outlook for BNY Mellon's entry into the crypto custody space, regulatory hurdles remain a major obstacle.

Lawmakers, including Congressman Patrick McHenry and Senator Cynthia Lummis , have expressed concern over the lack of transparency surrounding interactions between SEC staff and private companies.

In a joint letter addressed to the SEC and other regulatory bodies, lawmakers highlighted alleged private meetings where SAB 121 exemptions were discussed. The details of BNY Mellon's exemption remain unclear, raising questions about the regulatory framework that will govern the bank's activities within the crypto market.

BNY Mellon's success hinges on its ability to navigate the complex regulatory landscape while effectively catering to the growing demand for digital asset services among institutional investors.