US bank launches service as institutions rush to meet demand for crypto

The race to respond to institutional investors who wish to bet on cryptocurrency is intensifying.

US Bank, the nation’s fifth-largest retail bank, announced on Tuesday that its cryptocurrency custody service was available to fund managers, was the first to report CNBC.

According to Gunjan Kedia, vice president of the bank’s wealth management and investment services division, the offer will help investment managers store private keys for bitcoin, bitcoin cash and litecoin with the assistance from NYDIG sub-custodian. Support for other coins like Ethereum is expected over time, Kedia said.

The move is the latest sign that established financial players are starting to accept cryptocurrencies as a legitimate asset class. In the area of ​​custodian banks, which verify and protect trillions of dollars in traditional assets for fund managers, major players such as Bank of New York Mellon, State Street and Northern Trust have all announced their intention to retain digital assets.

“Our clients take cryptocurrency’s potential as a diverse asset class very seriously,” Kedia said in an interview. “I don’t think there is a single asset manager who isn’t thinking about it right now.”

The American bank, which was founded during the Civil War in 1863, is one of the top 10 players in custody with more than $ 8.6 trillion in assets under custody and administration, according to data from the Federal Deposit Insurance Corp.

After a key regulator released a document last year establishing that domestic banks could hold crypto assets, Kedia surveyed the firm’s biggest clients to determine if their interest was real. She found that interest in crypto was wide and not limited to niche players, and customers wanted the bank to scale fast.

“What we were hearing across the board was that while every currency might not survive – there might not be room for thousands of coins – there is something about the potential of this. asset class and the underlying technology that it would be prudent for us to stand up. support for that, ”she said.

Some investment clients already have positions in bitcoin, while others are waiting for custody services to start, she said. US Bank is one of the first institutions to offer a direct custody product, Kedia said.

The price of bitcoin has skyrocketed this year, reaching an all-time high of around $ 64,000 in April before losing half of its value the following month. But the original cryptocurrency has proven resilient: it resisted China’s decision to ban digital currency last month, and on Tuesday morning it hit $ 50,000 again.

There is irony in the fact that while bitcoin was created to eliminate financial intermediaries, parts of the old financial order are being recreated to respond to digital currencies. After all, fund managers might choose to store their own cryptocurrency keys. But managers want the imprimatur of established names like US Bank to help allay the concerns of their own customers, Kedia said.

In order to embed a manager into the crypto product, the US bank must trace the origin of the client’s funds in industry standard anti-money laundering and “know your client” controls, she said.

The product is only intended for institutional managers with private funds in the United States or the Cayman Islands, according to the bank. But if and when the U.S. Securities and Exchange Commission approves a bitcoin ETF, demand is expected to increase.

“We have a lot of funds that are hoping to invest in ETFs,” Kedia said. “Some literally want custody contracts to be signed on the day the SEC approves an ETF.”