Chris Brooks

Crypto scams represent a crisis, and if we move out of a bear market and into a bull market, the scams will come roaring back.&nbsp;



Even though the Chainalysis 2023 Crypto Crime Report showed that revenue from crypto scams in 2022 dropped from 2021, this by no means signifies that we’ve turned a corner and that current efforts to make scamming unprofitable are working.&nbsp;



To put that report in context, you have to consider that the price of bitcoin dropped from a high of almost $69,000 in 2021 to a low of less than $16,000 in 2022. The number of scams could have quadrupled in 2022, and the value of those scams would remain less than in 2021. Additionally, many people burned by scams in 2021 have likely left the crypto industry, at least until the next boom. As a final note, when crypto prices are falling, it is much more difficult for scammers to convince their marks that they are making fantastic returns.&nbsp;



Plus, even though losses in 2022 were less than in 2021, let’s not miss the overall shape of the curve: The FTC <a href="https://www.ftc.gov/news-events/data-visualizations/data-spotlight/2022/06/reports-show-scammers-cashing-crypto-craze">reported</a> that losses to crypto scams in 2021 were 60 times larger than in 2018.&nbsp;



There’s no doubt that the increasing value and market interest in crypto has made taking advantage of the industry a lucrative opportunity for cybercriminals. But don’t make the mistake of dismissing crypto scam victims as stupid: These scams are sophisticated, and the scammers have perfected their game through trial and error. New tools like OpenAI and other LLMs will also make scammers’ pitches more convincing and credible.



Instead, the blame behind the scams lies in the widely perpetuated idea that crypto users should be the only ones in charge of their own money.&nbsp;



<h2 class="wp-block-heading">&#8216;Not your keys, not your coins&#8217; is just not right</h2>



“Not your keys, not your coins” (NYKNYC) is a slogan attributed to Andreas Antonopoulos that has been used to dissuade token holders from storing their bitcoin in custodial exchanges. In the first 10 years of Bitcoin’s existence, many exchanges (like Mt Gox and Coincheck) were hacked out of business — at that time, it did genuinely seem like a security risk to use a crypto exchange.&nbsp;



However, the NYKNYC motto has now taken on a larger significance, essentially suggesting that one of the foundational values of crypto is that individuals should be solely responsible for the security of their tokens.



It’s this broader interpretation that I find increasingly irrelevant, especially because:&nbsp;



<ul>
<li>Exchanges have dramatically improved their security;</li>



<li>Insurance products are playing a larger role in securing exchange wallets;</li>



<li>Many of the largest recent hacks have actually been against smart contracts and DeFi platforms where individuals were using self-custody wallets</li>
</ul>



When the “not your keys” advice is wielded against scam victims, it’s particularly ridiculous. These are people who willingly sent tokens to scammers: whether they sent tokens from custodial accounts or non-custodial wallets is moot.&nbsp;



If you really believe that individuals should be solely responsible for their crypto, ask yourself these questions:&nbsp;&nbsp;



<ul>
<li>Have you personally audited the source code of the open-source self-custody wallets that you use? Or do you just rely on the idea that someone else has audited it?</li>



<li>Have you personally audited the open-source smart contracts which power the decentralized exchanges that you frequent? Or do you just rely on the idea that someone else has?&nbsp;</li>



<li>Have you even researched whether the wallets you use are open vs. closed source, or decided not to use a closed-source wallet because you can&#8217;t audit it?&nbsp;</li>
</ul>



<h2 class="wp-block-heading">What is to be done?</h2>



The ever-increasing sophistication of scammers is a challenge for local law enforcement, who do not have the training or the funding to investigate cryptocurrency crimes properly — especially as crypto scams largely happen outside the system of legal protections and regulated financial institutions that work to safeguard customers.



Read more from our opinion section: <a href="https://blockworks.co/news/privacy-dao-governance">Without privacy, DAO governance fails</a>



And tracing the global network of the criminals behind fraud poses significant challenges for both law enforcement and investigators alike. As a result, they are often unlikely to pursue the case because they do not clearly understand the actual crime or have a real-world entity to pursue. 



But while most of the loudest responses to this crisis call for investing in education, we must face the reality that educating people about the risks isn&#8217;t cutting it. In other words, education only protects the most sophisticated investors. The people we really need to protect and offer support to are those victims whose instinct to trust kicks in before their instinct to be skeptical does.&nbsp;



The industry either needs to come up with ways to slow the spread of scams and hacks or they can expect regulators to get involved with poorly thought-out solutions. Politicians, legislators and regulators already advocate that crypto is synonymous with fraud, and their responses to date have involved restricting crypto. The answer isn’t to clamp down, but to find ways to ensure that the least sophisticated users are protected.&nbsp;



Whether we like it or not, the foundational tools that we use in crypto require trust — trust that other people have done their job correctly.&nbsp;



If we want to bring a billion users into crypto, every player in the industry has to acknowledge that we should be doing more to make &#8220;not your keys, not your coins&#8221; a description of the bad old days rather than a prescription for the future.



<hr class="wp-block-separator has-alpha-channel-opacity"/>


<div class="wp-block-post-author-biography">Chris Brooks founded CryptoAssetRecovery.com in 2017 to help digital asset owners recover lost assets. Chris was a programmer at Fidelity Investments, VP of Technology at venture-backed Carescout (which sold to GenWorth, a spinoff of General Electric) and has founded and sold three bootstrapped internet companies. </div>


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If you care about crypto adoption, ‘not your keys, not your coins’ is a disaster

Ben Strack

Another traditional finance giant is wading into the crypto space.



Deutsche Bank is set to establish digital asset custody and tokenization services via a new partnership with Switzerland-based Taurus — a firm that offers infrastructure to issue, custody and trade crypto, tokenized assets and NFTs.&nbsp;



“The market has evolved to an extent where we see partnership opportunities key to developing the products and services that our clients are demanding,” Paul Maley, head of Deutsche Bank’s securities services, told Blockworks in an email.&nbsp;



Deutsche Bank looks to initially offer custody of “selected cryptocurrencies and some stablecoins” for corporate and institutional clients in the German company’s “home market regions,” the executive added — though he did not name specific assets.



On the tokenization front, the firm aims to first tokenize traditional financial securities.



Read more: <a href="https://blockworks.co/news/real-world-assets-tradfi-defi-tokenization">TradFi, DeFi convergence continues through tokenizing real-world assets</a>



BlackRock CEO Larry Fink said last year that the tokenization of securities is “<a href="https://blockworks.co/news/blackrock-ceo-still-in-crypto-for-the-tech-despite-ftx-scandal">the next generation for markets</a>.” TradFi firms such as <a href="https://blockworks.co/news/jpmorgan-trade-on-public-blockchain-monumental-step-for-defi">JPMorgan</a>, <a href="https://www.businesswire.com/news/home/20230110005308/en/Goldman-Sachs%E2%80%99-Tokenization-Platform-GS-DAP%E2%84%A2-Leveraging-Daml-Goes-Live">Goldman Sachs</a> and <a href="https://blockworks.co/news/stablecoin-with-yield-franklin-templeton">Franklin Templeton</a> have been busy in recent years and months exploring the tokenization space.



“We expect to see more and more traditional assets and cash payments eventually come on-chain,” Maley said. “Positioning ourselves for the future is our primary focus and we are working on a select number of projects to develop our capabilities.”



<h2 class="wp-block-heading">A&nbsp; journey into the space&nbsp;</h2>



Deutsche Bank participated in <a href="https://blockworks.co/news/credit-suisse-taurus-deal">Taurus’ $65 million funding round</a> in February — a fundraise led by fellow traditional financial giant Credit Suisse.&nbsp;



Taurus co-founder Lamine Brahimi told Blockworks at the time that Credit Suisse and Deutsche Bank have integrated its tech, or planned to — noting there would be “landmark transactions” in the coming months.&nbsp;&nbsp;



Teaming up with Taurus also comes after <a href="https://blockworks.co/news/deutsche-bank-crypto-custody-license-germany">Deutsche Bank applied to Germany’s financial regulator</a> in June to provide custody services for cryptocurrencies.



The latest partnership reflects “a natural extension” of Deutsche Bank initiatives laid out in a December 2020 <a href="https://www3.weforum.org/docs/WEF_Cryptocurrency_Uses_Cases_2020.pdf">report</a> by the World Economic Forum’s Global Future Council on Cryptocurrencies. the company noted in a Thursday news release.



Deutsche Bank said its aim at the time was to create a custody platform for institutional clients that would “introduce a secure connected bridge between digital assets and a customer’s traditional banking services.”&nbsp;&nbsp;



The bank planned to manage various digital assets and fiat holdings on one platform and allow clients to access those assets via “an institutional-grade hot [or] cold storage solution with insurance-grade protection.”



“We are pleased to implement this global partnership with Deutsche Bank and look forward to supporting the bank in launching digital assets and DLT-based products and services across several booking centers,” Brahimi said in a Thursday statement.&nbsp;



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Financial giant Deutsche Bank eyes crypto custody, tokenization

A new offering seeks to give financial advisers and their clients more flexibility when it comes to crypto custody — an area that has historically presented challenges for certain institutions.&nbsp;



Standard Custody &amp; Trust Company has joined forces with on-chain wealth management platform L1 Advisors to launch a product that seeks to blend the security of qualified custody with the control of self-custody, the companies told Blockworks.&nbsp;



Built for registered investment advisors (RIAs), wealth managers and family offices, financial advisers can now monitor assets in qualified custody or in clients&#8217; self-custodied wallets through the L1 platform.



The advisers can then create custom custody setups for each client based on risk profile, goals and other criteria, according to L1 Advisors CEO Miguel Kudry.



“A client who believes in self-sovereignty and wants exposure to DeFi can be both self-custodied and leverage qualified custody for tax advantaged account types,” Kudry told Blockworks in an email. “At the same time, clients who seek a more balanced risk profile can benefit from the security of qualified custody and only use self-custody as a pass-through to DeFi protocols and products.”



Based on compliance needs of each adviser, some may choose to have discretion over assets in qualified custody, he added. Others might defer all discretion to their clients.



Nick Rygiel, owner and financial adviser at Ironclad Financial, said his firm began its digital asset advisory offering by working with clients who were self-custodied through the L1 platform.&nbsp;



Those with growing assets under advisement needed a way to add assets into client estate plans, he noted. The new product from Standard Custody and L1 Advisors enables Ironclad to expand to working with digital assets in trusts and other tax-advantaged structures.



“The values of a qualified custodian along with Standard Custody’s access to best execution via escrow allows Ironclad to compliantly check all the boxes for different client appetites,” Rygiel said.&nbsp;



<h2 class="wp-block-heading">Crypto custody challenges</h2>



A main problem for digital asset custody for RIAs and other wealth managers in the US is that there is not a clear definition of “qualified custody,” according to Adam Blumberg, co-founder of Interaxis.&nbsp;



“RIAs use custodians to hold assets, and then exercise discretion — basically a Limited Power of Attorney — to affect trades within client accounts on assets held with those custodians,” he told Blockworks.&nbsp;&nbsp;&nbsp;



The SEC proposed amendments to the so-called “Safeguarding Advisory Client Assets” rule in February — which <a href="https://blockworks.co/news/sec-commissioner-opposes-agency-again">gained criticism from SEC Commissioner Hester Peirce</a>, a long-time advocate for crypto.



<a href="https://blockworks.co/news/blockchain-association-sec-custody-rule">The Blockchain Association argued in a May letter</a> that the requirements would discourage crypto-native custodians from continuing to provide such services.



Read more: <a href="https://blockworks.co/news/5-firms-bashing-sec-proposed-custody-rule">Bain Capital Crypto Among 5 Firms Bashing SEC’s Proposed Custody Rule</a>



Crypto custodians also don’t necessarily sync well with traditional custodians, Blumberg said. As an RIA managing client assets, or as a family office, it isn’t seamless to move assets from dollars or equities straight to crypto at a custodian, he noted.&nbsp;&nbsp;



“There is a conversion to fiat, a wire transfer — which can take a while — and then a purchase of crypto,” Blumberg explained. “Fee-heavy, time intensive and risks along the way.”



Blockchain infrastructure provider PolySign, the parent company of Standard Custody and Trust Company, <a href="https://blockworks.co/news/polysign-closes-53m-series-c-round">raised $53 million last year</a>. PolySign CEO Jack McDonald told Blockworks at the time that “a better platform for custody and fund administration” was necessary for institutional investors.



Though a January survey found that a majority of financial advisers <a href="https://blockworks.co/news/financial-advisers-unfazed-by-crypto-volatility">plan to maintain or increase their clients’ exposure to crypto</a>, one by Goldman Sachs in May found <a href="https://blockworks.co/news/family-office-crypto-interest-plummets">family offices were not as interested in the asset class</a>.



Digital assets adoption is being driven by the end client and a regulatory focus on safeguarding of assets, according to Matt Wahl, PolySign’s director of business development.



“Each of these clients require a customized approach that only a hybrid of qualified and self-custody can deliver,” he told Blockworks in an email. “This partnership allows advisers to finally deliver a solution for the digital asset client, and it couldn&#8217;t be more timely with the largest generational wealth transfer approaching.&#8221;



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Standard Custody debuts crypto custody tools via link-up with wealth management platform

Michael Bodley

Fresh off of locking down its $7 million seed round, Web3 infrastructure startup Cubist is deepening its own contribution to the crypto industry’s homegrown cross-chain security efforts.&nbsp;



The San Diego-based firm hopes to combat Web3 vulnerabilities with its inaugural security solution, launched Tuesday.



Cubists’ offering is intended, in part, to capitalize on industry interest stemming from <a href="https://blockworks.co/news/18m-eth-to-hit-market" target="_blank" rel="noreferrer noopener">Ethereum’s long awaited Shapella upgrade</a>, according to Chief Operating Officer Ann Stefan, also a co-founder.



The move is also designed, Stefan told Blockworks exclusively, to guard against unintentional errors that Web3 engineers introduce in coding tech stacks — the kind of errors that <a href="https://blockworks.co/news/defi-hackers-returning-funds" target="_blank" rel="noreferrer noopener">open up security vulnerabilities</a> that leave dApp users vulnerable to exploits. That extends to token bridges connecting blockchain networks to <a href="https://blockworks.co/tag/ethereum" target="_blank" rel="noreferrer noopener">Ethereum</a> (<a href="https://blockworks.co/price/eth" target="_blank" rel="noreferrer noopener">ETH</a>), she said.&nbsp;



“Right now in Web3, engineers are having to think about the low-level bits and bytes of what they’re doing,” Stefan said in an interview. “They’re having to write a lot of low-level, error-prone, verbose code that spans the entire tech stack.”&nbsp;



“So, there’s a couple of issues there. One is that you have to basically know everything to get anything done. And the second is that — just by the very nature of it — it’s prone to errors.”


<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img loading="lazy" decoding="async" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/04/cubist.jpg" alt="" class="wp-image-52520" width="212" height="212" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/04/cubist.jpg?w=720 720w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/cubist.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/cubist.jpg?w=150 150w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/cubist.jpg?w=257 257w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/cubist.jpg?w=261 261w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/cubist.jpg?w=219 219w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/cubist.jpg?w=80 80w" sizes="(max-width: 212px) 100vw, 212px" /><figcaption class="wp-element-caption">Ann Stefan, Cubist co-founder/COO | Source: Cubist</figcaption></figure></div>


Read more: <a href="https://blockworks.co/news/solving-web3s-developer-problem-web2" target="_blank" rel="noreferrer noopener">Solving Web3’s Developer Problem: Web2 Remains Hesitant</a>



The startup has partnered with fellow Web3 infrastructure company Ankr on the launch.&nbsp;&nbsp;



“Really, where we’re coming [from] with this problem with Cubist is trying to abstract away much of that low-level detail, so that engineers can really focus on their product — and not have to try to be security experts and still be able to build secure products,” Stefan said.&nbsp;



A statement from Cubist described the product as a “non-custodial key management platform” that is “designed to help infrastructure engineering teams secure and programmatically manage their private key.”



The crypto key management software is built so that “no one — including Cubist — can see, copy, or steal private user keys,” the company said in its statement.&nbsp;



Cubist’s new key management software has already been “securing Ankr’s Ethereum validators, including the execution of safe withdrawals,” according to the release.&nbsp;



Stanley Wu, Ankr’s co-founder and chief technology officer, said Cubist is “uniquely qualified to secure Ankr’s most critical workflows” when it comes to “Ethereum liquid staking.”&nbsp;



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Cubist Launches ‘Non-custodial’ Web3 Private Key Manager

Lior Lamesh

There’s nothing more some in the crypto industry would like than to seize upon the failures of Silicon Valley Bank, Signature Bank and Silvergate to sow distrust of traditional financial institutions. And while it doesn’t seem these banks did anything illegal at this juncture, the events may indicate a broader, perhaps industry-wide, failure. In fact, a <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4387676">recent report suggests</a> that at least 190 additional banks in the US are currently in danger of uninsured market runs (similar to that of SVB and Signature).&nbsp;



Despite the crisis, traditional banks are in many ways still far better equipped to provide crypto services than their crypto counterparts are. First, banks are skilled at taking custody of assets in a manner that is secure and compliant with regulation. Second, banks, in many cases, are still considered to be more trustworthy and transparent than their crypto-native counterparts. And third (most importantly), traditional banks can offer more diversified portfolio management, straddling both the crypto and fiat domains. All three points here give banks a definite leg-up in providing digital asset services to retail and institutional investors alike.



<h2 class="wp-block-heading">A deep, dark void of trust&nbsp;</h2>



The hacks, insolvencies and crashing crypto valuations that characterized 2022 have eroded consumer trust and confidence in crypto to its lowest levels in years. Believers and skeptics alike have had their faith severely tested. Increasingly, both critics and crypto natives are calling for more regulation and oversight. Industry thought leaders and exchange CEOs are all urging for self-custody. With a general lack of trust for all things crypto native — and in particular centralized exchanges (CEX) — a major void has formed within the industry.



Up until now, the market has virtually been monopolized by crypto-native companies. Financial institutions have been slow to keep pace with their crypto-native counterparts. In fact, a recent <a href="https://www.bnymellon.com/content/dam/bnymellon/documents/pdf/insights/migration-digital-assets-survey.pdf">survey</a> by Celent found that 65 percent of institutions go through crypto-native platforms for digital asset services, such as trading, lending and borrowing.



However, over the last couple of years, traditional financial institutions have gradually warmed up to digital assets, realizing that they have been missing out on viable revenue-generating opportunities. With 35 percent of the market share at the end of 2022, traditional finance has been steadily gaining traction for crypto custody, even prior to the <a href="https://www.theguardian.com/technology/2022/nov/18/how-did-crypto-firm-ftx-collapse">collapse of FTX</a>.



<h2 class="wp-block-heading">Regulation is around the corner</h2>



Given the events of the past year, regulators around the world have upped their game. <a href="https://www.europarl.europa.eu/thinktank/en/document/EPRS_BRI(2022)739221">MiCA (Markets in Crypto Asset) regulations</a> are expected to be passed in the EU during the first half of 2023. Earlier this year, the <a href="https://www.finextra.com/newsarticle/41711/uk-govenment-outlines-plans-to-regulate-cryptoasset-industry?utm_medium=newsflash&amp;utm_source=2023-2-1&amp;member=136033">UK announced</a> plans to strengthen regulation in the crypto industry, with stricter rules for financial intermediaries, custodians and crypto trading platforms. The US is also slowly making progress with a <a href="https://cointelegraph.com/news/congress-may-be-ungovernable-but-us-could-see-crypto-legislation-in-2023">framework</a> published in late 2022, albeit with less certainty.&nbsp;



<h2 class="wp-block-heading">Straddling the divide</h2>



Banks offering digital asset services could easily straddle the divide between traditional finance and the ‘future economy’ by offering customers access to diversified portfolio management. No longer would investors need to manage their crypto with A and their fiat with B.



Case in point, the aforementioned Celent survey suggests that 70 percent of institutional investors would increase their digital asset activity if services like custody and management were available from recognized, trusted institutions.&nbsp;



Moreover, 72 percent of institutional investors prefer to work through financial institutions providing hybrid portfolios consisting of both digital and fiat-backed assets. This indicates that the prevailing separation of asset classes doesn’t provide the optimal strategy for most investors.



<h2 class="wp-block-heading">Not as easy as it seems</h2>



Traditional financial institutions are well-positioned to fill the void of ‘trust,’ have more experience in asset custody, and know how to work with regulatory bodies — all of which positions them to take advantage of new revenue-generating opportunities in the custody and management of digital assets.



But there’s certainly a learning curve for financial institutions entering the digital asset custody space. While banks are well versed in safeguarding fiat assets, the custody of digital assets often requires a different mindset. The very nature of these digital assets exposes them to unique challenges which require additional safeguards.&nbsp;



Banks need to look to technology solutions that will enable them to effectively custody digital assets in a way that fits their operational needs while providing the highest degree of security. Luckily, digital asset custody solutions have come a long way and are empowering financial institutions to play a larger role than many would have imagined a year ago.&nbsp;



Regulators, investors and responsible industry players are all looking to minimize uncertainty and guarantee basic investor protections. The crises experienced across both markets make the need for a safer, more stable, financial ecosystem for all more clear than ever before. An ecosystem in which traditional financial institutions have an opportunity to take the lead.



<hr class="wp-block-separator has-alpha-channel-opacity"/>


<div class="wp-block-post-author-biography">Lior Lamesh is the co-founder and CEO of GK8, a company that offers both traditional and crypto-native institutions an end-to-end platform for managing blockchain-based assets, including custody, DeFi, staking, NFT, CBDC, and tokenization support. Having honed his cyber skills in Israel’s elite cyber team reporting directly to the Prime Minister&#8217;s Office, Lior led the company from its inception to one of the most impressive acquisitions of 2021. In 2022 Lior, alongside his co-founder Shachar Shamai, were selected by Forbes to be included in its prestigious ‘Forbes 30 under 30’ list.</div>


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Crypto Custody Has a Problem and Only Banks Have a Solution

Nasdaq’s hotly anticipated crypto custody suite is taking shape, with a launch reportedly expected before the end of the second quarter.&nbsp;



Bloomberg <a href="https://www.bloomberg.com/news/articles/2023-03-24/nasdaq-eyes-crypto-custody-launch-by-end-of-second-quarter" target="_blank" rel="noreferrer noopener">reported</a> on Friday that Nasdaq Inc., the parent company of the US tech-heavy stock exchange, is “pushing ahead to get all the necessary technical infrastructure and regulatory approvals in place.” Bloomberg cited an interview with Ira Auerbach, senior vice president and head of Nasdaq Digital Assets, in reporting the news. 



<a href="https://blockworks.co/news/nasdaq-to-enter-crypto-custody-market-for-institutional-clients">Nasdaq first made its digital asset ambitions known in September</a> 2022, as previously reported by Blockworks, when its president and chief executive, Adena Friedman, then said in a statement that the “technology that underpins the digital asset ecosystem has the potential to transform markets over the long-term.”



“To deliver on that opportunity, our focus will be to provide institutional-grade solutions that bring greater liquidity, integrity, and transparency to support the evolution,” she said in a statement at the time.&nbsp;



Nasdaq’s reported launch by the end of the second half of 2023 comes at a time when crypto industry participants say traditional finance interest is on the uptick. And the stock exchange’s move is at least one indicator that institutional-grade crypto interest remains strong, despite a disastrous 2022 for many sectors within the digital asset ecosystem.&nbsp;



In the fourth quarter of 2022, <a href="https://blockworks.co/news/bny-mellon-moves-to-let-institutions-hold-bitcoin-ether">BNY Mellon said it would provide custody and transfer services</a> for bitcoin (<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a>) and ether (<a href="https://blockworks.co/price/eth" target="_blank" rel="noreferrer noopener">ETH</a>), specifically, to a number of its institutional clients, according to a Blockworks’ story from the time. 



Crypto traders in more recent weeks have been eyeing what their traditional finance counterparts are doing in the space, as bitcoin, ether and crypto more broadly have found their local floor — and have already booked substantial performance gains so far in 2023.



There’s also been a related crypto-native push of late, per <a href="https://blockworks.co/news/crypto-custody-safety-net-animoca">Blockworks’ previous reporting</a>, to cash in on opportunities to provide blockchain-based alternatives to those moves made by the likes of Nasdaq and its counterparts.



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Nasdaq Crypto Custody Crystallizing, Launch Coming Soon: Report

Shalini Nagarajan

Recent closures of US banks and Credit Suisse’s distress sale appear to have acted as a catalyst for bitcoin’s <a href="https://blockworks.co/news/microstrategy-nearly-even-on-bitcoin" target="_blank" rel="noreferrer noopener">recent rally</a> and highlighted the utility of crypto self-custody.



According to Yat Siu, co-founder at Web3 venture capital firm Animoca Brands, the <a href="https://blockworks.co/news/silicon-valley-bank-meltdown-has-little-to-do-with-crypto" target="_blank" rel="noreferrer noopener">collapse</a> of Silicon Valley Bank showed the fragility of the banking system. 



A number of tech entrepreneurs and startups saw their assets suddenly frozen, under the control of the Federal Deposit Insurance Corporation.&nbsp;



Meanwhile, the rise of crypto has made self-custody more practical, to the point that digital assets can serve as a potential future safety net, Siu <a href="https://www.forbes.com/sites/zinnialee/2023/03/20/animocas-yat-siu-says-crypto-is-becoming-a-safety-net-amid-banking-crisis" target="_blank" rel="noreferrer noopener">reportedly</a> said during a Web3 investment summit in Hong Kong on Monday.



“Crypto, and specifically bitcoin and ether, become attractive alternative ways to store value without those particular traditional banking risks,&#8221; Siu told Forbes. 



Bitcoin now trades around $27,780, up 68% in the year-to-date period, but down 32% in the last year. Ether is hovering at $1,750, up 46% year-to-date and down 39% in the last 12 months.



Siu reasoned the situation reflects a “flight of regular money to some cryptocurrencies.” Blockworks has reached out to Siu for comment.



Animoca’s portfolio counts more than <a href="https://www.animocabrands.com/mission-and-vision" target="_blank" rel="noreferrer noopener">380 investments</a>, including Axie Infinity, OpenSea and Dapper Labs. Siu said Animoca hasn’t been directly impacted by recently failed banks, but some of its investments could have exposure. Still, he said their deposits are safe and the problem isn’t significant. 



Animoca’s investors were <a href="https://www.animocabrands.com/information-for-shareholders-animoca-brands-does-not-bank-with-silvergate-or-svb" target="_blank" rel="noreferrer noopener">informed</a> on March 11 that neither Silvergate nor Silicon Valley Bank was a partner. 



Vineeth Bhuvanagiri, managing director of Cardano’s commercial arm EMURGO Fintech, weighed in on bitcoin’s strength during the crisis, claiming it’s a hedge against fiat currency debasement.



“This banking crisis has led to huge injections of liquidity into the market so as to shore up wobbling financial institutions, with a consequence of this being more debasement of the dollar. This is a key reason why bitcoin is surging,” he told Blockworks.



The US dollar, as represented by the DXY index, is down 0.4% year to date but up 4.67% over the past year, and 15.19% across the past five years.



“I think this marks a broader recognition that Bitcoin can serve as a safe haven for storing wealth because there is no counterparty risk involved — you are your own bank with Bitcoin,” Bhuvanagiri said.



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Crypto Self-Custody a ‘Future Safety Net’: Animoca Co-Founder

Properly measuring counterparty risk in crypto has rarely been more crucial.&nbsp;



This is the clear message emanating from a panel at the iConnections Global Alts conference in Miami on Tuesday featuring executives from Anchorage Digital, Bitgo, Coinbase and One River Digital.



Participants tapped the intended topic, the “evolution” of crypto custody, as a springboard to dive into all things due diligence in a post-FTX digital assets landscape.



Especially with <a href="https://blockworks.co/news/stablecoin-regulation-congress-priority">heightened US regulatory scrutiny on the horizon</a>.



Sarah Schroeder, a One River portfolio manager, said that “ultimately, this is a counterparties question.” She drew a parallel to Wall Street’s practices for safeguarding customer assets, including cash and derivatives. It’s “very easy” for institutional investors to “call upon Goldman Sachs” and its peers for that crucial function, she said.



But how cryptoassets are custodied is another question entirely for newcomer traders and allocators — with passive and active approaches alike — to wrap their heads around. How? By whom? And why?



There is no shortage of mechanisms these days, some more complex than others, for keeping digital assets under lock and key. There are more solutions being added by the day — especially after the historic implosion of Sam Bankman-Fried’s <a href="https://blockworks.co/tag/ftx">FTX</a>, plus the subsequent shutdowns and deep rooted complications for a number of crypto’s erstwhile giants.&nbsp;



Some of those custodial offerings, according to Adam Sporn, BitGo’s head of prime brokerage, have been around since crypto’s last major cycle. Some are still very much a moving target.&nbsp;



Drawing particular institutional interest of late from the likes of venture capitalist and family offices, Sporn said, are cold storage solutions. Cold storage works by keeping the private keys that <a href="https://blockworks.co/news/what-are-seed-phrases">govern ownership of digital assets</a> offline, as opposed to a “hot wallet” that is connected to the internet and may be hosted by an exchange.



READ MORE: <a href="https://blockworks.co/news/hot-wallets-cold-wallets">Everything you need to know about hot vs. cold wallets</a>



<h2 class="wp-block-heading">Rush for exchange exits</h2>



Both retail and institutional investors alike yanked their crypto assets off of exchanges in the wake of the wave of service provider bankruptcies and <a href="https://blockworks.co/news/genesis-gemini-charged-with-securities-violations-by-sec">related freezes on customer withdrawals</a>.&nbsp;



It’s been a bit of a slog for outright custodians to regain trust in markets that were already deemed risky by much of the mainstream.



BitGo, according to Sporn, has picked up on a trend: Crypto-native funds “don’t care about the cold storage” and instead have been using hot wallets as much as ever. High-frequency digital asset hedge funds and proprietary trading entities typically have little use for storing their cryptocurrencies offline.&nbsp;



But other portfolio managers with less time-sensitive trading styles have been carving out a middle ground, Sporn said, keeping something like 2% of their book in hot wallets for ‘liquidity needs” and locking up the remainder elsewhere.&nbsp;



Neither trend is especially new when it comes to family offices and venture capitalists. But industry eyes and ears have been following the money — and, more precisely, how the money moves — since crypto markets collapsed in the fourth quarter of 2022.&nbsp;



<h2 class="wp-block-heading">What to do about custody?</h2>



In that (brutal) context, industry participants are now looking for options when it comes to the digital asset products at their disposal, according to Yuriy Anosov, Anchorage’s head of trading. The longtime custodian is working on setting up a settlement and exchange layer similar to setups that have been commonplace on Wall Street for a while, Anosov said.



Anchorage is now supporting a couple of hundred cryptoassets, according to Anosov — adding that it’s now “really important to see what the inter-party agreements are like.” Anosov was referring to relationships between a protocol, or a DAO, and its own counterparties.&nbsp;



The basic idea is that limited partners and general partners ought to do their homework on the service providers they choose to entrust with their capital. And, in turn, those service providers ought to carefully parse the internal governance of cryptocurrencies and Web3 initiatives they choose to bring onto their platforms.



Those dual layers of due diligence have become paramount, according to Lauren Abendschein, Coinbase’s head of institutional sales for the Americas.&nbsp;&nbsp;



“We saw this with FTX, not having properly experienced individuals, particularly in control functions — and a well-documented history across those control functions,” Abendschein said. “It applies to crypto very much, as it does every other industry.”&nbsp;



The SEC and the CFTC have taken note. Anosov said that he thinks “regulators are actually going to be speeding up their timeline in the case of actually [moving] regulations forward” in 2023.



There are a number of pending US legal and regulatory initiatives the panelists said they’re following. Among them: <a href="https://blockworks.co/news/these-5-crypto-friendly-us-states-show-initiative-on-tax-laws">digital asset taxation</a> and <a href="https://blockworks.co/news/stablecoin-regulation-congress-priority">stablecoin oversight</a>.



Jiri Krol, a top AIMA executive who moderated the iConnections conversation, said that “hopefully we get something done this year, but I’m not holding my breath.”



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Regulators May Be ‘Speeding Up Their Timeline’ on Cryptocurrencies

David Canellis

Crypto wallet maker Ledger is rolling out its crypto debit card across the UK and Europe, as a string of scandals in the ecosystem spurs interest in self-custody solutions.



Ledger’s Crypto Life (CL) card allows users to move crypto between Ledger hardware wallets and card accounts via companion app Ledger Live.



While the card supports the French firm&#8217;s cold crypto wallets — which promote self-custody — CL is developed by London-based fintech Baanx, which states that “it’s not a bank” on its website.



Similar to other crypto cards already on offer, customers can earn 1% crypto rewards in bitcoin or USDT, or 2% in Baanx’s native token BXX, when funds are spent. Users can also receive paychecks denominated in bitcoin, ether or other stablecoins.



Lithuanian banking-as-a-service provider Contis Financial handles custody of all funds kept on the card. Baanx’s website states that Contis Financial is authorized by the Lithuanian central bank, however card funds will not be covered by the country’s Financial Services Compensation Scheme or Deposit Insurance System.



“No other compensation scheme exists to cover losses claimed in connection with the account and associated card,” Baanx says in an FAQ. “We will however ensure that any funds received by you are held in a segregated account so that should we become insolvent your funds will be protected against claims made by our creditors.”



Like Mastercard, Visa supports crypto cards issued by several companies including Coinbase and Binance. Binance’s branded <a href="https://www.binance.com/en/support/faq/how-does-binance-card-cashback-work-c93fe535bcf4431aa32623ae0a49d4f2" target="_blank" rel="noreferrer noopener">card</a> is similar to Ledger’s — in fact it’s also managed by Contis — but the rewards are in BNB and held on the exchange.&nbsp;



Ledger card promotes self-custody, until it&#8217;s time to spend crypto



Ledger says it received over 400,000 waitlist signups for CL, after first announcing the program at the Ledger Op3n conference in Dec. 2021.&nbsp;



Customers can use their cards at some 90 million merchants and online stores accepting Mastercard across the UK and Europe. “We now have an easy and secure solution to pay with crypto that also allows you to self-custody until you want to top up,&#8221; said JF Rochet, vice president of international development at Ledger.



Ledger partner Baanx no doubt hopes adoption of the product might boost the price of its BXX token. The startup first sold BXX at $0.12 in an initial coin offering in 2019, with 56% of the supply designated for the public.



BXX now trades for about $0.012 — down 90% from its initial sale price and 97% below its $0.40 record last October. The token boasts a meagre market value of $430,000 after jumping about 25% Thursday morning, a few hours ahead of the press release embargo.



Crypto-compatible cards were also popular with ill-fated lending platforms Celsius, Voyager and BlockFi, with those products all directly threatened by their respective liquidity crises.



Ledger’s card differs slightly in that Ledger users can directly transfer crypto from cold storage for spending and back again — rather than from centralized entity to card. The firm <a href="https://blockworks.co/news/celsius-woes-spark-boom-in-ledger-sales" target="_blank" rel="noreferrer noopener">has claimed</a> that 20% of all digital assets are held on Ledger devices.



Sales for Ledger devices actually spiked following Celsius&#8217; collapse as crypto investors rethought who they trust with their assets. In an email to Blockworks, a Ledger spokesperson said: &#8220;We warn customers every time they top up that the funds are no longer self-custodied on their Ledger, so ideally they would top up what they need to use, when they need to use it.&#8221;



US-based Ledger users eager for a debit card will still have to wait a few months. A US rollout was earlier pegged for Q2 this year, however a spokesperson said it would arrive “in the coming months.” The US card will use Visa instead of Mastercard.



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Ledger Rolls Out ‘Crypto Life’ Debit Card Across UK and Europe

Bessie Liu

<div id="highlights-block_6329e30b59a63" class="highlights">
 <ul>
 <li>The exchange will be competing with the likes of Coinbase and Anchorage</li>
 <li>Former Gemini executive will be heading the new Nasdaq Digital Assets</li>
 </ul>
 
</div>



Nasdaq, the second-largest stock exchange in the United States is looking to capitalize on institutional investors by offering crypto custody services for bitcoin and ether.&nbsp;



Former global head of Gemini Prime will be joining the Nasdaq team to head the new division — Nasdaq Digital Assets.&nbsp;



If approved by the New York Department of Financial Services (NYDFS), Nasdaq will become a custodian of digital assets, placing the stock exchange in direct competition with centralized crypto giants including Coinbase, Anchorage Digital and BitGo.&nbsp;



Nasdaq is the latest Wall Street giant to take a greater interest in the blockchain technology space. The financial services giant has slowly been making moves in the cryptocurrency market.&nbsp;



It currently outsources its surveillance and trading software to blockchain companies and has invested in crypto software and data, Nasdaq President Adena Friedman said in a statement.&nbsp;



“The technology that underpins the digital asset ecosystem has the potential to transform markets over the long-term. To deliver on that opportunity, our focus will be to provide institutional-grade solutions that bring greater liquidity, integrity, and transparency to support the evolution,” Friedman said.&nbsp;



Despite these moves, Friedman <a href="https://www.bloomberg.com/news/videos/2022-05-04/nasdaq-s-role-in-crypto-markets-video" target="_blank" rel="noreferrer noopener">has previously said</a> the exchange remains reticent in the absence of regulatory clarity.



The institutional crypto custody provider space has received a lot of market attention globally in recent years.&nbsp;



Barclays — a British multinational bank invested “<a href="https://cms.blockworks.co/barclays-takes-punt-on-crypto-firm-copper-in-latest-funding-round/" target="_blank" rel="noreferrer noopener">millions of dollars</a>” into crypto custody firm Copper. Genesis trading, a digital trade brokerage, was able to <a href="https://cms.blockworks.co/crypto-custody-expands-in-uk-eu-with-genesis-bbva-switzerland/" target="_blank" rel="noreferrer noopener">clear regulator hurdles</a> and expand its operations to UK, Japan, Canada, Turkey, Israel and Latin America in December last year.



Retail investors, once they become more familiar with blockchain technology, are more likely to make use of self-custody options, according to Charles Hamel, vice president of product at crypto hardware wallet manufacturer Ledger.



In an <a href="https://cms.blockworks.co/cryptos-future-is-self-custody-dealing-blow-to-exchanges-ledger-vp-says/" target="_blank" rel="noreferrer noopener">interview with Blockworks</a> in May, Hamel said self-custodying digital assets is the “future,” a sentiment echoed by Coinbase CEO Brian Armstrong.



In a blog post published in June, Armstrong <a href="https://blog.coinbase.com/embracing-decentralization-at-coinbase-7fa0e5d1084b" target="_blank" rel="noreferrer noopener">wrote</a>, “The products that the most crypto-forward people are using today will be used by mainstream customers in a year, and by institutions a few years after that…we need to start integrating them today.”



For now, the regulatory and technical hurdles to self-custody at institutional scale, make solutions like those envisioned by Nasdaq more appealing.&nbsp;



“Demand among institutional investors for engaging in digital assets has increased in recent years, and Nasdaq is well-positioned to accelerate broader adoption and drive sustainable growth,” said Tal Cohen, executive vice president and head of North American markets at Nasdaq.



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Nasdaq To Enter Crypto Custody Market for Institutional Clients

Macauley Peterson

<div id="highlights-block_626a84c2894eb" class="highlights">
 <ul>
 <li>More EU banks will soon offer digital assets to their clients, Taurus CEO says</li>
 <li>The French DASP license prepares banks to comply with EU-wide regulations</li>
 </ul>
 
</div>



Switzerland has long been thought of as the crypto capital of Europe, with its Zug canton — dubbed ‘Crypto Valley’ — home to <a href="https://www.swissinfo.ch/eng/swiss--crypto-valley--boasts-14--unicorns-/47291870" target="_blank" rel="noreferrer noopener">over a thousand blockchain startups</a>. But other countries in the EU are catching up.



A recent report <a href="https://cms.blockworks.co/report-germany-is-the-most-crypto-friendly-country/" target="_blank" rel="noreferrer noopener">put Germany at the top</a> of the crypto-friendly rankings globally, largely due to the rollout of digital asset custody and trading by German banks. That pattern looks to be going continent-wide, as the French Banque Delubac &amp; Cie, founded in 1924, has become the first to receive the status of Digital Asset Service Provider (“DASP”), allowing investment in digital assets, in partnership with Swiss crypto infrastructure provider Taurus.



The DASP license stems from a 2019 law in France — the PACTE law, or Action Plan for Business Growth and Transformation (“Plan d&#8217;Action pour la Croissance et la Transformation des Entreprises”) — and it should prepare banks well for the next phase of EU regulation, the MiCa, Taurus co-founder Lamine Brahimi told Blockworks.



The MiCA (“Markets in Crypto-assets”) regulation, introduced in 2020 and working its way toward adoption in 2023, is the first EU-wide legislative initiative to establish a comprehensive framework for the issuance of and provision of services for cryptoassets.



Until recently, it was unclear whether or how quickly traditional banks such as Delubac &amp; Cie would move to offer digital assets to their client base, according to Brahimi. Perhaps they would leave the space to unregulated entities — firms without banking licenses. But Brahimi is now confident that more incumbent banks will follow.



<blockquote class="wp-block-quote">“You can assume that the demand now is getting mainstream,” Brahimi said, adding “It&#8217;s not just theory.&#8221;</blockquote>



Roughly half of Europeans prefer decentralized exchanges, according to <a href="https://www.bde.es/f/webbde/Secciones/Publicaciones/InformesBoletinesRevistas/InformesEstabilidadFinancera/22/IEF_2022_1_CapE.pdf" target="_blank" rel="noreferrer noopener">a recent report</a> from the Bank of Spain, which rates France and Germany as the top two crypto friendly countries in Europe. But there’s a wide swath of the European public that welcomes the investor protections which come from dealing with a regulated bank, Brahimi said.



“If you are an expert in managing wallets, and you want to do it on your own and secure your private keys yourself, that&#8217;s fine, but the vast majority of the people out there just don&#8217;t want to manage this complexity, and they want to buy cryptos or tokenized securities, or what have you, in the same way they buy stocks, and have it reported in their consolidated banking reporting.”



These fence-sitters may have an interest in trading digital assets, but they prefer to deal with their existing day-to-day bank rather than establish new accounts with crypto-dedicated firms.



If that proves to be the case, infrastructure partners like Taurus — which works with banks in Germany, Switzerland, France, Spain and Eastern Europe — stand to benefit, as big institutions would rather buy or license a product from a service provider than develop in-house cryptography and specialized IT expertise needed for secure custody.



”Now that the first few banks have made the move, we’ve received multiple calls from players that ask us, ‘how can we move forward?’,” Brahimi said.



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French Bank, Delubac & Cie, First to Offer Regulated Digital Asset Services

<div id="highlights-block_61eb2c02567d8" class="highlights">
 <ul>
 <li>Japanese investment bank Nomura launched Komainu, a joint venture with CoinShares and Ledger, in 2020</li>
 <li>Matthew Chamberlain held various leadership roles over nine years at London Metal Exchange, including CEO, COO and head of business development </li>
 </ul>
 
</div>



Digital asset custodian <a href="https://www.komainu.com">Komainu</a> has tasked incoming CEO Matthew Chamberlain with adding services for institutions eyeing a digital assets expansion.



Chamberlain is set to officially join Komainu later in the first quarter, a spokesperson told Blockworks. Henson Orser, <a href="https://cms.blockworks.co/gone-crypto-why-orser-left-nomura-to-head-komainu/">Komainu’s acting CEO</a>, will transition to president.&nbsp;



The former head of the London Metal Exchange (LME) said Komainu’s regulated institutional custody platform and its hybrid servicing model combines the best of traditional and decentralized finance.



&#8220;I believe strongly in the transformative capacity of a blockchain-empowered world,” Chamberlain said in a statement. “But such technologies will only deliver their true potential when robust infrastructure exists to make them easily and reliably available to all those who wish to participate in this unprecedented period of financial democratization.”



The hire comes after Komainu raised $25 million in its Series A funding round last March. Alan Howard, co-founder of Brevan Howard and Elwood Asset Management, led the round.



The incoming CEO spent the last nine years at the <a href="https://www.lme.com">LME</a>. Most of the world’s non-ferrous metals business is conducted on the LME, totalling $11.6 trillion in 2020.



He served as LME’s CEO for the last five years, and previously worked as its chief operating officer, head of business development and head of strategy and implementation.



Chamberlain began his career at Citibank and went on to work for Perella Weinberg Partners and UBS, where he was involved in mergers and acquisitions with a focus on exchanges and financial market infrastructure.&nbsp;



“The digital asset industry is maturing and needs experienced professionals to support the institutionalization shift at work,” CoinShares CEO Jean-Marie Mognetti said in a statement.&nbsp; “Matthew&#8217;s professional background is key for Komainu’s development towards financial institutions.”



Japanese investment bank Nomura announced the launch of Komainu, a joint venture with CoinShares and Ledger, in 2018. The service, based in Channel Islands, officially launched in June 2020.&nbsp;

CEO of London Metal Exchange Latest Finance Exec to Join Crypto Firm

Tanaya Macheel

<div id="highlights-block_60887c2371792" class="highlights">
 <ul>
 <li>U.S. Bank also said it will also administer NYDIG’s bitcoin exchange-traded fund this year, pending regulatory approvals</li>
 <li>U.S. Bank has been developing its “blockchain initiatives” since 2015</li>
 </ul>
 
</div>



U.S. Bank is rolling out a custody service for digital assets and will administer NYDIG’s bitcoin exchange traded fund this year pending regulatory approvals.&nbsp;



The fifth-largest <a href="https://www.usbank.com/about-us-bank.html" target="_blank" rel="noreferrer noopener">bank</a> in the US by assets is moving forward with its plans in an effort to meet increasing demand by pension funds, insurance companies and other institutional clients to invest in digital assets, Christine Waldron, U.S. Bank’s strategy chief, told Blockworks Tuesday.



It follows the <a href="https://cms.blockworks.co/bny-mellon-offer-bitcoin-custody-this-year/" target="_blank" rel="noreferrer noopener">Bank of New York Mellon</a> and <a href="https://cms.blockworks.co/state-street-lends-tech-to-institutional-crypto-trading-platform/" target="_blank" rel="noreferrer noopener">State Street</a>, both of which have made similar announcements in recent weeks.



&#8220;That&#8217;s the best part of this story: that you&#8217;re really seeing the institutions saying, ‘this is an asset class that is here to stay, and we need to now make sure we&#8217;re putting that appropriate rigor around it,’” Waldron said.



<h3 class="wp-block-heading">U.S. Bank saw the trend coming</h3>



U.S. Bank has been developing its “blockchain initiatives” since 2015, Waldron said. They include an RFP to expand its custody network to include cryptocurrency custodians, its ability to service digital asset funds like NYDIG (a longstanding client of the bank’s), and its <a href="https://cms.blockworks.co/state-street-u-s-bank-in-on-30m-securrency-raise/" target="_blank" rel="noreferrer noopener">investment in Securrency</a>, a financial technology firm focused on bringing crypto compliance tools to banks and financial institutions.



“We had the benefit of putting a lot of infrastructure in place early on to help our clients,” Waldron said. “We saw this trend coming, and we were in a really good position to help them meet the market needs and demand.&#8221;



Waldron said the bank has selected its sub-custodian for storing digital assets but has yet to reveal that partner as it finalizes risk management, compliance and operational integration processes.



U.S. Bank also said it will also administer NYDIG’s bitcoin exchange-traded fund this year, pending regulatory approvals. NYDIG, the digital asset subsidiary of Stone Ridge Asset Management, filed for a bitcoin ETF in February, joining Galaxy Digital, Fidelity, Van Eck, Grayscale and others <a href="https://cms.blockworks.co/fidelity-enters-the-bitcoin-etf-race/" target="_blank" rel="noreferrer noopener">vying for SEC approval for a bitcoin ETF</a>.



<h3 class="wp-block-heading">Have to hold</h3>



Waldron said that’s just the first U.S. Bank has been named in, but that it’s been working closely with “a few” other clients to file their S-1s (the Securities and Exchange Commission filing companies submit when planning to go public, to register their securities) establishing cryptocurrency ETFs.&nbsp;



“This product is going to come to market at some point here,” she said.



Despite U.S. Bank’s work dating back several years, Waldron said the landscape began to shift in October, when the US Office of the Comptroller of the Currency confirmed banks can hold stablecoin reserves as a service to bank customers.&nbsp;



“You saw huge institutional investor money flow starting to come in and then you really heard the rhetoric with all of these third-party investment managers saying ‘cryptocurrency is going to be one of these things we&#8217;re going to maybe want to add into our portfolio. It may not be our primary investment objective, it may not even be something we want to hold long-term, but it&#8217;s something we&#8217;re going to end up having to hold,’” Waldron said.