BNY Mellon Launches Bitcoin, Ethereum Custody Services for Investment Firms

BNY Mellon will begin holding Bitcoin and Ethereum on behalf of its customers with software developed alongside crypto custody provider Fireblocks.

The service goes live on the bank’s accounting platform today for select investment firms, according to a report in The Wall Street Journal. This means BNY Mellon will store clients’ private keys and provide some bookkeeping on the crypto assets in their portfolios.

The bank will use compliance software from Chainalysis, including KYT (Know Your Transaction), an investigative tool for performing due diligence and another for assessing transaction volumes and counterparties.

“During the process, we worked closely with market-leading fintechs, tapping digital asset technology specialists Fireblocks and Chainalysis to integrate their technology in order to meet the present and future security and compliance needs of clients across the digital asset space,” BNY Mellon spokesperson Steve LaMarca told Decrypt in an email.

He said clients who have accounts on the bank’s platform will be able to custody only digital assets, if they choose, and that the bank will add support for more crypto assets “based on client demand, commercial opportunity, and regulatory guidance.”

It’s the latest, and perhaps biggest, step forward in the U.S. crypto market from the country’s oldest bank.

BNY Mellon and crypto

In February 2021, BNY Mellon announced plans to eventually custody crypto on behalf of its customers. A month later, the bank launched a Bitcoin custodian service in Ireland—to the dismay of Ireland’s central bank officials.

In March, BNY Mellon became the custodian for the cash reserves that back Circle’s stablecoin, USD Coin. And in February, the bank announced that it had started using Chainalysis compliance software, noting at the time that it was a precursor to an eventual custody service.

“Chainalysis has always believed that financial institutions are critical to the overall growth and success of the cryptocurrency industry,” Chainalysis co-founder and chief security officer Jonathan Levin said in a statement.

BNY Mellon currently has $43 trillion worth of assets under custody and another $2 trillion assets under management, according to its second-quarter earnings report. Acting as a custodian, the firm’s primary business, usually involves providing less active allocation or financial advice.

The bank formed its new digital assets unit last February, saying then that it would “accelerate development of enterprise solutions to service the rapidly evolving digital asset space.”

Last April, Fireblocks CEO and co-founder Michael Shaulov talked about the difficulties developing a crypto custody solution on the BNY Mellon Perspectives podcast.

Whereas SWIFT, an international financial services network, can take two or three days to settle a transaction—therefore giving analysts plenty of time to verify it—crypto transactions settle within seconds or minutes. That means crypto custodians face two main issues, he said.

“One, is really how do you secure that private key at rest, because that essentially is what guarantees to you that, you know, you go to sleep with 100 Bitcoin in that wallet, and you wake up with 100 Bitcoin still there,” Shaulov said on the podcast. “And the second issue, which I think a lot of people don’t really think about in this context, is that eventually the most difficult part is really to make sure that you are transferring it to the right location.”

Tuesday’s news makes BNY Mellon one of several Wall Street stalwarts to announce crypto news amid the bear market.

In August, BlackRock launched a spot Bitcoin private trust for its U.S.-based institutional clients and announced a partnership with Coinbase Prime. Last month, Nasdaq said it’s working on its own institutional crypto custody service and Fidelity said it might offer Bitcoin to its retail investors.

Editor’s note: This article was updated after publication to include comments from a BNY Mellon spokesperson.