quick take
- U.S. banks are urging the SEC to amend crypto regulations to enable them to manage Bitcoin ETFs, citing that existing rules impose significant costs on them for providing crypto services.
- Despite Bitcoin ETFs amassing $4 billion in investments, banks have yet to participate in this sector.
Leading U.S. banks are advocating for a reassessment of the Securities and Exchange Commission’s (SEC) definition of crypto assets, seeking a larger presence in the expanding cryptocurrency market. This effort follows the recent approval of spot Bitcoin exchange-traded funds (ETFs), where American banks were notably absent as asset custodians.
Advocacy within the banking sector for regulatory adaptation
A coalition consisting of the Bank Policy Institute, American Bankers Association, Financial Services Forum, and Securities Industry and Financial Markets Association has written to SEC Chair Gary Gensler, highlighting the absence of U.S. banks as custodians for approved Bitcoin ETFs. They urge the SEC to amend Staff Accounting Bulletin 121 (SAB 121), issued in March 2022, which governs the accounting treatment of crypto asset custody obligations.
The coalition proposes narrowing the definition of crypto assets outlined in SAB 121 to exclude traditional assets recorded on blockchain technology, aiming to avoid stringent crypto guidance for assets like tokenized deposits.
Additionally, they advocate for banks to be exempt from the requirement to hold crypto assets on their balance sheets, citing costliness and impediments to offering crypto custody services at scale. However, they emphasize the importance of maintaining disclosure requirements for investor transparency.
Market reactions and observations
Matt Hougan, Bitwise’s Chief Investment Officer, views the coalition’s letter as signaling a change in Washington’s regulatory approach to crypto assets, especially following the approval of Bitcoin ETFs.
On the other hand, Eric Balchunas, an ETF analyst at Bloomberg, highlights U.S. banks’ eagerness to engage in the digital finance trend, evident from their pursuit of roles in the crypto custodianship sector. Insights from industry insiders also indicate increasing frustration among bankers regarding their exclusion from facilitating spot Bitcoin ETFs for clients.
Despite the non-participation of U.S. banks as custodians, recently launched spot Bitcoin ETFs have garnered significant investor interest. Preliminary data from Farside indicates that aggregate inflows have exceeded $4 billion. Concurrently, there has been an uptick in outflows from Grayscale, a prominent digital currency asset manager.
The sector’s appeal to the SEC for a reassessment of crypto asset regulations highlights the evolving landscape of digital finance and the growing involvement of traditional financial institutions in the crypto market. As stakeholders await regulatory decisions, investors and industry observers will closely monitor the performance of Bitcoin ETFs and the broader cryptocurrency market.
