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Major U.S. Banks Want  SEC to Give Them a Part in the Bitcoin ETF Custodianship

Banks lobby for Bitcoin ETF custodian roles

Major U.S. banks are making strides towards securing a pivotal role in the Bitcoin ETF market. On February 14, a coalition of banking associations, including the Bank Policy Institute, American Bankers Association, Financial Services Forum, and Securities Industry and Financial Markets Association, reached out to SEC Chair Gary Gensler. They argued that despite the recent approval of 11 spot Bitcoin exchange-traded products (ETPs) in the U.S., American banks were conspicuously absent from these arrangements as asset custodians. The letter underscored:

“The Commission recently approved 11 Spot Bitcoin ETPs, allowing investors access to this asset class through a regulated product. However, notably absent from those approved products are banking organizations serving as the asset custodian, a role they regularly play for most other ETPs.”

This push by the banks to be included as custodians for Bitcoin ETFs highlights their eagerness to partake in the digital asset space, leveraging their experience in custodial roles for other exchange-traded products. It reflects a broader ambition within the banking sector to integrate more deeply into the digital finance ecosystem, recognizing the growing importance of crypto assets in the investment landscape.

The push to adjust crypto asset definitions

In their concerted effort to influence the regulatory landscape, the banking coalition has specifically targeted modifications to Staff Accounting Bulletin 121 (SAB 121). Issued in March 2022, SAB 121 outlines the SEC’s guidance on accounting for crypto asset custody obligations, which currently requires banks to hold these assets on their balance sheets. This stipulation, the banks argue, significantly hampers their ability to provide crypto custody services at scale due to the increased costs and complexities involved.

The coalition requested an exemption from the on-balance sheet requirements for banks, albeit maintaining the comprehensive disclosure requirements. This change would enable banks to engage more freely in crypto-related activities while still ensuring transparency and protection for investors.

The impact of Bitcoin ETFs on crypto regulation and bank involvement

The banking sector's push for regulatory adjustments comes at a time when Bitcoin ETFs are altering the crypto regulatory dialogue in Washington. Bitwise's Chief Investment Officer, Matt Hougan, remarked on X (formerly Twitter): 

"If you were wondering if bitcoin ETFs were going to change the tone around crypto regulation in Washington, here's your answer." 

This sentiment is echoed in the industry, suggesting that the approval of Bitcoin ETFs signals a turning point for digital finance regulation.

Bloomberg ETF analyst Eric Balchunas summarized the situation, stating, 

"US banks, left off key bitcoin ETF roles, are pushing SEC to tweak guidance around holding digital assets." 

The enthusiasm for involvement in the Bitcoin ETF space is not just about regulatory compliance; it's also driven by a fear of missing out (FOMO) as the first quarter of the year sees bankers eager to hold spot Bitcoin ETFs for their customers. TheBitcoin Therapist, a weekly Bitcoin newsletter author, captured this mood: 

"Bankers are getting pissed they can’t hold spot Bitcoin ETFs for their customers. The Q1 FOMO is already driving them mad."

With over $4 billion flowing into newly launched spot Bitcoin ETFs, despite outflows from other digital asset funds like Grayscale, the banking sector's interest in digital finance is more than a fleeting trend.