Recently, the Office of the Comptroller of the Currency issued new guidelines on crypto custody. According to the OCC letter, nationally chartered banks in the US can offer crypto custody services to their clients. It is now up to banks to decide how to best take advantage of this regulatory guideline.
The letter by the OCC only provides banks in the US with better comfort when it comes to handling crypto. Those that were already exploring the sector can now move on with confidence that they are not violating any rules.
The Opportunity For US Banks
Cryptocurrencies are a complex asset to handle. While many people use them for transactions, the IRS considers crypto to be assets. Besides that, they have a high degree of volatility. Crypto owners usually store their private keys in a hard wallet that needs to be securely stored.
As a payment facilitator, they are a challenge to the legacy banking system. However, when considered an asset, they are an opportunity for the banking system. The OCC guidance stated that banks in the US could hold the private keys of cryptocurrencies.
It means that banks can offer custody solutions to crypto owners. Banks already have a loyal customer base that trusts their custody solutions. Consequently, onboarding customers that hold crypto should not be a challenge.
For now, banks have to begin work on the design of a virtual vault in which private keys will be held. It will require many of them to establish dedicated divisions that gather knowledge on blockchain technology, digital assets, and crypto. They will need to understand how to offer scalable solutions for crypto custody. Additionally, they will need to deepen their expertise on all the technology, security, and regulatory requirements that come with offering crypto custody.
Pricing Will Matter
Today, most people use personal hard wallets or crypto exchange wallets to store their crypto. The main value proposition of banks is that they are comparatively more trusted than most crypto exchanges. However, to win over retail customers, pricing will be crucial. Institutional investors in search of secure crypto custody solutions are also likely to turn to banks. They already have a well-established relationship with them and crypto custody would be an added benefit.
Master The Technology
Blockchain technology has been around for over a decade, experiencing a ton of maturation. Banks will need to carefully vet the technology vendors they pick. To do this, they will need to master the technology that is involved in the crypto and blockchain sector. Clients of crypto custody solutions will most likely want a custodian service that allows them to settle instantaneously across settlement platforms.
While there have been efforts to bridge the gap between the legacy financial world and the crypto world, there is still a divide. As a result, many banks have invested little in crypto research, which means they lack the in-house expertise. They will thus need to engage in aggressive talent acquisition campaigns. The talent pool in the crypto and blockchain sector is still relatively tiny. As a result, the bank that gets the best talent will likely win when it comes to crypto custody.
The recent approval of crypto by a major financial regulator could provide a boost to the value of crypto. Regulatory guidelines such as the recent OCC letter help to provide clarity to the sector. It comes at a time when economic uncertainty is causing investors to look for ways to diversify their portfolio. No doubt, the decision to allow US banks to hold crypto will be positive for the future of crypto.
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