Bitcoin is coming to America’s oldest bank, BNY Mellon

BNY Mellon said it would allow digital assets to travel the same lines used by other, more traditional holdings of managers – from treasuries to technology stocks – using a platform that is now in prototype. The bank is already discussing plans with customers to get their digital currencies off the ground.

“Digital assets are becoming mainstream,” said Roman Regelman, chief executive of the asset services and digital division of BNY Mellon.

Previously, these money managers had to use separate custodians for their cryptocurrency holdings, Mr Regelman said

It’s a big step for Wall Street back-office banks, whose concerns about regulatory, legal, and stability risks have hesitated to engage directly with the crypto markets. BNY Mellon and its competitors have been working on various services for customers’ digital assets for years but are waiting for signs from regulators that they could advance in a market that was once criticized for its use for illegal activity. A signal flashed earlier this year when the Auditor’s Office dismissed banks’ use of blockchain technologies.

As the prices of Bitcoin and other digital assets have continued to rise, they are becoming increasingly popular with asset managers, hedge funds, and other institutional investors. Bitcoin hit an intraday high of $ 48,635.84 today, according to CoinDesk.

“As customers evolve, you must evolve with them,” said Glenn Schorr, an analyst at Evercore ISI. “Who are you to say, ‘Nobody is going to use crypto’?”

Top company executives have begun urging BNY Mellon and her colleagues to treat digital assets like their other holdings, Regelman said.

“We have seen an increase in customer interest and demand, and it is only natural that we should bring our legacy of trust and innovation to close the gap between traditional and digital assets,” said Todd Gibbons, BNY Mellon’s general manager .

Custodians keep a record of all of the managers’ dealings and, at the end of the day, determine how the value of each of those assets has changed.

“The job of the custodian is to ensure that it can book and value funds at an aggregate and shareholder level, and to ensure that assets are in place,” said Peter Cherecwich, President of Asset Servicing, Northern Trust Corp.

, and performing these tasks on digital assets has meant figuring out how to deal with those that require physical storage, like cryptocurrencies do.

BNY Mellon isn’t the first major financial company to show an interest in digital assets. Fidelity Investments announced plans to store and trade Bitcoin and Ether, another digital currency, in October 2018, and received regulatory approval a year later to operate its New York crypto business.

But BNY Mellon’s announcement marks the first time any major custodian has come up with a roadmap for treating digital currencies like any other asset. And the bank has no limits on the types of digital assets it can store there. BNY Mellon intends to offer these features later this year.

Northern Trust’s Cherecwich said there are still questions about how and where digital assets are regulated but “they certainly clear up”.

“We had to get it right,” said Cherecwich. “It’s a new asset class.” His bank with Standard Chartered PLC formed a joint venture, Zodia Custody, which will store digital assets.

Cryptocurrencies are just a flavor, he said. Others include digitizing contracts between private equity firms and their investors or tailor-made derivatives.

Custodians like BNY Mellon are increasingly turning to technology to wrest costs. Many of the services they provide to the investor world, while indispensable, are generally less profitable than advising on a merger, going public, or obtaining credit, for example.

The drive to digitize financial services has brought custodians, long considered one of the clumsiest corners of Wall Street, to the fore as champions of technological change. Even now, however, some of their clients insist on faxing their positions to their custodian on a daily basis.

The more assets slip seamlessly through the pipes of the custodians, the faster and cheaper the bookkeeping business becomes.

BNY Mellon expects many customers to bring in their digital assets, even if custodians don’t currently have a clear window of how large those holdings have become. The bank has formed a team of senior executives who will oversee how digital assets can be incorporated into all of its businesses and has appointed Mike Demissie, Head of Advanced Solutions, to lead it.

Mr. Regelman reckons it will take another three to five years for digital assets to be fully integrated into Wall Street’s traditional infrastructure.

On Wednesday, Mastercard said it would support certain cryptocurrencies on its network later this year.

In January, the OCC issued guidelines stating that banks could use blockchain networks and other so-called stablecoins to perform certain functions. Stablecoins are currencies that are backed by fiat currencies and other traditional assets. In its letter, the OCC said they could be used to facilitate payments.

Earlier this month, Tesla Inc.’s

Elon Musk said he would allow customers to use bitcoins to buy the company’s electric vehicles. The automaker also said it bought $ 1.5 billion of the currency for its corporate coffers.

Still, trading digital currencies like Bitcoin remains volatile, which limits their use in many day-to-day transactions.

Write to Justin Bear at [email protected]