Most Banks’ Crypto Efforts Undeterred Despite Choppy Waters

TradFi banking giants including BNY Mellon have an opportunity when it comes to cultivating customer trust after FTX’s fall, an analyst told Blockworks

article-image

DALL-E modified by Blockworks

share

Bad news for crypto has not necessarily translated to bad news for banks with digital asset aspirations. 

At least one TradFi player is set to ditch its crypto division. But its competitors aren’t pulling the plug as quickly — despite a volatile market environment and regulators amping up crypto scrutiny. 

Banking giants, including BNY Mellon and Fidelity, that have deepened their crypto pushes do not appear to be reversing course, an analyst who follows the sector told Blockworks. But bearish sentiments lingering from 2022 could lead executives to shelf those plans, at least for now, an analyst told Blockworks.  

“We’re just having a pause while the situation from FTX gets resolved and people understand what went wrong, how we prevent that going forward and then who are the established players where people can have trust,” said Ed Groshans, a senior research and policy analyst at Compass Point Research & Trading.   

Oversight heightening

Regulatory risks for banks engaged in crypto dealings have ramped up since the collapse of FTX, Groshans wrote in a research note last week.

US financial regulators issued a Jan. 3 statement detailing perceived risks banks take when it comes to digital assets, adding that they would continue to monitor any and all crypto-related exposures accordingly.

Crypto bank Silvergate said two days later that it was forced during the quarter to sell assets at a major loss to fulfill more than $8 billion of customer withdrawals.

“FTX failed, and most of the regulators were probably thankful that it was a Bahamas-based institution and they didn’t have direct supervision of it, so they dodged a bullet,” Groshans said. “They don’t want to be responsible for the next bullet if it hits one of the regulated institutions.”

Metropolitan Commercial Bank has been the latest to act, saying Monday that the firm is getting out of crypto in light of “recent developments” in the industry, as well as regulatory shifts.

The bank said it expects “minimal financial impact” from its decision. It has four institutional clients engaged in crypto that accounted for roughly 1.5% of total revenues and 6% of total deposits. The client relationships, set to be closed out this year, are limited to offering debit card, payment and account services. 

The company has no outstanding loans to the clients, does not hold crypto on its balance sheet, and does not sell crypto to its customers. 

“Today’s announcement of our exit from the crypto-currency related asset vertical represents the culmination of a process that began in 2017, when we decided to pivot away from crypto and not grow the business,” Metropolitan Commercial Bank CEO Mark DeFazio said in a statement.

What will other banks do?

While banks that were looking to get into crypto are likely to hold off — at least for now — Groshans said, existing entrants ought to be especially (or more) diligent in their digital asset dealings.

“For institutions that want to muscle ahead and move forward, that’s going to be a long, drawn-out process to get a letter of no-objection from the regulators,” he said. “They’re going to have to double dot their i’s and double cross their t’s, if you will. Just dotting them once and crossing them once is not going to be sufficient.”

BNY Mellon appears to be undeterred to continue offering crypto-related products, at least in the immediate future. Fund and custody services are live on the bank’s digital asset platform.

A BNY Mellon spokesperson declined to comment.

BNY Mellon acts as a counterparty to 19 crypto ETFs and mutual funds, as well as the embattled Grayscale Bitcoin Trust (GBTC), while its digital asset custody platform — launched in October — is currently available to select US institutional clients. 

The bank had $42.2 trillion in assets under custody or administration and $1.8 trillion in assets under management, as of Sept. 30.

Caroline Butler, CEO of the firm’s custody services, said in an October statement that as the world’s largest custodian, BNY Mellon is the “natural provider” to create a safe custody platform in the space for institutional clients.

“They can really flesh out their business model over the next several months to several years to put themselves as a lynchpin of trust in the crypto space from a custody perspective,” Groshans said. 

Rival bank State Street formed a digital arm in 2021 and has said it plans to use distributed ledger technology to tokenize funds and private assets in 2023. A spokesperson did not immediately return a request for comment. 

Fidelity Investments said last April it was set to allow individuals to allocate a portion of their retirement savings to bitcoin through the company’s 401(k) plan investment lineup, spurring lawmakers to urge the company to halt these efforts. 

Fidelity’s digital asset arm was getting set to offer its institutional investors the ability to buy, trade, sell and custody ether, a spokesperson said in September — mirroring its current bitcoin products.

“A meaningful portion of Fidelity customers are already interested in and own crypto,” the Fidelity representative told Blockworks. “We are providing them with tools to support their choice, so they can benefit from Fidelity’s education, research and technology.”

A spokesperson declined to comment on its specific roadmap for the segment.

Despite Metropolitan’s move on Monday, Customers Bank is not considering a crypto exit, a spokesperson told Blockworks.

The company and blockchain-based real time payments platform Tassat launched the Customers Bank Instant Token (CBIT), on TassatPay in 2021, for example. 

“CBIT, customer and transaction volumes continue to grow month-over-month and we remain excited to provide safe, secure and reliable payments in a highly compliant environment for leading digital asset customers,” the Customers Bank representative said.

Signature Bank also does not have plans to scuttle its crypto framework, but has taken recent precautions. 

The company is in the process of decreasing digital assets deposits to between 15% and 20% of the total funds under its purview, a spokesperson told Blockworks.


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Javits Center North | 445 11th Ave

Tues - Thurs, March 18 - 20, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

recent research

kamino cover.jpg

Research

Kamino has solidified its position as the leading money market on Solana and is emerging as a DeFi bluechip. Although DeFi competition is fierce, Kamino has kept iterating on its product to provide the best-in-class UX, paired with a robust risk management framework and battle-tested infrastructure. Given the rollout of Kamino Lend V2, the protocol may scale aggressively over the coming months, penetrating previously untapped markets in Solana DeFi.

article-image

Why that the bull market might not start until 2025

article-image

August’s annual headline figure came in at 2.3% after an upward revision Thursday, so things are moving in the right direction 

article-image

MSTR’s stock price was roughly $248 at 2 pm ET Thursday

article-image

Ever since rates came off zero and fiscal deficits exploded, markets have started paying close attention to how the government is funding itself

article-image

Solana memecoins are collectively at an all-time high

article-image

Optimistic rollups like Optimism, Arbitrum and Base are seeing rapid adoption relative to zk rollups