The Office of the Comptroller of the Currency (OCC), a division of the United States Department of the Treasury that oversees banking in the country, issued on July 22 a letter interpretative in which it is clarified that the nationally chartered banks are authorized to provide cryptocurrency custody services to their clients that extend to the storage of cryptographic keys associated with the currencies.
In its letter, the OCC It recognizes the current need for banks and other financial service providers to take advantage of Blockchain technology and provide related services to their clients. In addition to national banks, this permit extends to state banks and loan / savings associations, also known as “thrifts.”
What will change?
The most remarkable thing is that this movement, Combined with the news of an expected 2 trillion Federal Reserve stimulus, it has pushed the price of Bitcoin (BTC) above $ 11,000. However, the result may not be only in the short term. Highlighting the importance of this move, Hong Fang, the CEO of OKCoin – a global cryptocurrency exchange – told Cointelegraph:
“The OCC has marked an important milestone by allowing traditional banks to provide custody services to be applied to cryptocurrencies, thereby strengthening the overall financial system and expanding financial inclusion. While the public letter did not introduce new regulations, it added clarification. much needed compared to national banks that provide cryptocurrency custody services. “
According to Fang, the latest decision is heavily influenced by the acting comptroller of the currency, Brian Brooks – the former legal director of Coinbase, a cryptocurrency exchange based in the United States. His experience in legal, compliance and government-related functions has allowed him to better understand the aspects of cryptocurrency custody in the United States financial system: “Acting Comptroller Brian Brooks’ Security-Focused Observations Will Help The US Remain A Leader On The Global Financial Landscape“
Impact on institutional investors
Development like this has a big impact on institutional investors who are often skeptical of new industries like cryptocurrencies. It is a step towards crypto assets being considered a legitimate asset class by big banks, payment companies and clearing agencies. Sam Wyner, a co-leader in crypto asset services at KPMG, discussed the impact of this announcement on institutional investors with Cointelegraph, alluding to the nature of custodians:
“Custody is a commission-based business and the regulatory support behind a new commission-based business makes it that much more desirable. Institutional cryptocurrency markets continue to grow in size, maturity and sophistication, driving the need for custody services. Market uncertainty further increases the appeal of a new commission-based product offering. “
Major global banks in the United States already have a strong underlying infrastructure and systems for a traditional custody business, and cryptocurrencies can share that foundation according to Wyner, who further added: “Building the infrastructure for cryptocurrencies now will allow banks to support tokenized assets in the future“
Taking into account the custody commission opportunities that this movement brings, institutional actors are obliged to be the largest benefactors. The trickle-down effect of this surge in interest will inevitably affect retail investors, allowing them to increase the proportion of crypto assets in their individual wallets. Here, Fang further stated: “I hope that more banks will open up more to cryptocurrencies, with potentially better banking channels, more public awareness, and more regulatory clarity. Ultimately, gain a better user experience“
The largest institutional cryptocurrency exchange, Bakkt has broken its daily records of BTC futures volumes twice in the past 2 days and the BTC options volume that has hit a record high in Deribit could also be an indication that this interest is increasing. However, a clear trend still needs to be established before any judgment is made.
An opportunity for banks?
Earlier this year, 40 German banks approached regulators, expressing interest in crypto asset custody licenses, and Germany’s Federal Financial Supervisory Authority, or BaFin, also public in March a guideline saying that companies can only be called custodians if they have access to customers’ private keys, which could eliminate providers who see encrypted keys. Despite this interest, the CEO of Crypto Storage AG said that the company found it extremely difficult to even open a bank account in the country because banks did not understand the nature of the cryptocurrency industry.
Similarly, in the United States, banks may not immediately take advantage of the opportunity, since technically, Banks have never been banned from safekeeping of crypto assets, and there has never been transparency about the risks that this could entail. From this perspective, this evolution can only be considered as a clarification of the OCC. Alex Batlin, the founder and CEO and founder of Trustology – a custody wallet provider – told Cointelegraph that he expects some latency, adding: “For anyone who is active in this space, it is just an affirmation of what there is. For those who were not active in the past, it may cause some movement, but it may take some time for consciousness to evolve“
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In addition to the lack of clarity on behalf of the Treasury Department, there have been barriers in the past that have added enormous costs to organizations. For example, Fidelity offered crypto asset custody services, but there was always the problem of mixing normal business activities with cryptocurrencies due to lack of clarity if the same organization was allowed to do both.
“Now that the green light is official, in principle, one of the things you should do is reduce the cost of entering this line of business, it is easier to do it because there are fewer obstacles“According to Batlin. Referring to the risk-averse nature of banks and large-scale institutional investment vehicles, he further stated:
“Banks are very aware of the risk. So when you have them looking at a proposal, and there is a lack of regulation, why would you risk your license for something that will yield quite low returns in the next two years? I think there will be demand. , either at the lower end or if it is enough for BNY-type banks and others. “
Exchanges and cryptocurrency users benefit
Cryptocurrency exchanges could use this change to have collaborative relationships with banks in order to allow better future prospects for the industry, feed liquidity and improve the user experience. Wyner explained that cryptocurrency companies could start leveraging banking products to accelerate growth, adding more: “This is likely to impact the future plans of exchanges on how they build products and integrate non-custodial services that allow for better market liquidity and access to staking and governance service offerings.Batlin believes that exchanges could start leveraging banks in this scenario to serve their clients:
“Exchanges will now be able to leverage banks as custodians and streamline payments in cryptocurrencies in which banks were once reluctant participants. In short, an opportunity for them to drive a better user experience and open up cryptocurrencies to be a mechanism current payment “.
Investors in the United States could gain better experiences by participating in crypto assets when their existing banks allow them to track and interact with those assets on their established platforms for electronic banking and digital commerce. Looking beyond the similar short-term and long-term lucrative results of this movement, Wyner stated:
“Increased competition for long-term custody services can drive innovation and lower prices. However, in the short term, there is a possibility that commission structures will increase, the types of crypto assets admitted will be limited and the ability to access better price execution in liquidity funds is reduced. “
This move may not be good news for everyone in the business. Established cryptocurrency custody companies like Coinbase, Blockchain.com, and Trustology may be very skeptical due to the economies of scale already achieved by banks in the traditional custody business. These custodian companies would have two options to compete and / or integrate with these banks using external portfolios and ordering routing systems to maintain strong liquidity. Wyner believes that “there is new competition and they will have to consider the possibility of differentiating themselves in terms of capacities and rates compared to new entrants to the market“, adding: “At the same time, mature cryptocurrency custodians with proven capabilities remain desirable to the market.“