Industry startups cheer the OCC's crypto custody move, but don't bet on big banks jumping into bitcoin just yet

Heads turned in the world of cryptocurrency on Wednesday when the U.S. Office of the Comptroller of the Currency, which oversees federally chartered banks, announced that banks that fall under its remit now have its approval to offer crypto custody services.

Comments from companies in the space seem to suggest that the announcement didn't exactly come as a surprise. Rather, it was the fruit of long-running discussions between a nascent industry that by definition exists at the edge of modern finance and a regulator that oversees an array of institutions, many of which provide services to communities across America.

Indeed, Acting Comptroller Brian Brooks — himself a one-time chief legal officer for crypto exchange unicorn Coinbase — framed it as a decidedly forward-looking move for a government bureau first created in 1863.

"From safe-deposit boxes to virtual vaults, we must ensure banks can meet the financial services needs of their customers today," Brooks said in a statement published alongside an interpretive letter.

Commentary from the crypto industry's top custody firms draws a portrait of optimism and a sense that the guidance will open doors for both banks and the industry companies that may one day provide them with the software needed to safely store the private keys associated with digital assets.

"This is great news for the industry," Mike Belshe, co-founder and chief executive of BitGo, told The Block. "BitGo first started discussions with the OCC over two years ago, so it is good to see their awareness of digital assets now making its way into formal policy."

He continued:

"Ubiquitous acceptance of digital assets in our financial system is sorely needed and a significant step forward. Federal banks that have previously been uncertain about how to employ BitGo's technology and compliance solutions are already reaching out to us."

Clearing up custody

Unsurprisingly, the positive sentiment was shared by other crypto firms contacted by The Block, including Curv, Fireblocks and Anchorage. Of course, whether the door-opening undertaken by the OCC results in any actual movement toward the adoption of such services remains to be seen.

Still, the move effectively sends a signal to Wall Street and other financial-services firms that one of its main regulators views custody services as a bank service along with other services such as run-of-the-mill checking and saving account services—which previously wasn't clear, according to Peter Van Valkenburgh of Coin Center.

"Regular national banks are being told now, 'Hey you can do this. This is in your core functions. It is not something you are barred from doing as a bank," Van Valkenburgh explained.

Prior to the OCC announcement, banks technically could have offered crypto custody vis-a-vis state regulators. That's effectively the route crypto startups have taken. Bakkt operates as a custodian with the permission of the New York Department of Financial Services, whereas BitGo operates under the auspices of the State of South Dakota. Now, chartered banks don't need to navigate the patchwork of state regulations to offer the type of services crypto custodians offer.

"This is an interpretive letter," said Van Valkenburgh. "It means that people have asked the OCC, and those people shall remain nameless because this is a confidential process, but people have asked 'can we do this' and here is a letter saying people can do this as a federally chartered bank under our interpretation of the National Bank Act."

"Technically there is no new law here but it is the most formal thing the OCC can do short of making Congress pass a law," he continued.

Miller Whitehouse-Levine, the Blockchain Association's policy lead, told The Block that the OCC release "eliminates the regulatory ambiguity regarding national banks and federal savings associations offering custody services for their customers."

"Instead of holding crypto assets at specialized providers, individuals will be able to have the choice to hold their cryptocurrencies at their familiar bank," Whitehouse-Levine said. "Institutional investors, reluctant to enter the crypto market because national banks have not offered custody services, may be more willing to in light of this letter."

Meanwhile, on Wall Street

Still, despite the fervor across the native crypto landscape, bank insiders threw cold water on the announcement, noting that it likely won't move the needle for Wall Street's largest institutions.

"This is massive news for small/medium banks," one crypto executive said.

As for the bulge-bracket firms, they likely will not move until one of their competitors move, several bank employees told The Block. Insiders say such institutions — which have been kicking the tires on crypto custody since 2017 — are risk-averse, and even with positive action from a national regulator would still face hurdles such as taking steps to enhance their existing infrastructure to handle things like key management.

Both JPMorgan and Citigroup declined to comment for this report.

One executive pointed to the sluggishness of banks rolling out services like retail stock trading as an example of why it might take them time to jump on the crypto bandwagon. Despite retail brokers' presence on Wall Street since the 1990s, JPMorgan only rolled out stock trading in 2019.

While the move may not push large banks into crypto custody, it might push some institutions to take a closer look at making a crypto acquisition, says Van Valkenburgh.

"This interpretive letter suggests that key storage is a key banking activity, meaning it is not a commercial activity," he said. "That means you can engage with that business or buy a business that engages with it."

John Dantoni contributed reporting.