AMERICA’S OLDEST BANK, BNY MELLON, WILL CUSTODY BITCOIN
The wild adoption of bitcoin as a store of value and a medium of exchange is permeating into traditional banks, so much so that a national bank like the Bank of New York, Mellon, announced that bitcoin will be a part of the assets they’ll manage for customers. The announcement heralded a new dawn in cryptocurrency adoption in the world as well as bitcoin custody.
The Bank of New York, Mellon, is the oldest bank in the United States, and its acceptance of bitcoin custody, or in layman’s terms, bitcoin as an asset class, in its account signals positive days for bitcoin and cryptocurrency.
The chief executive of the bank’s asset-servicing business said that the bank decided to add bitcoin to the assets it managed because “digital assets are becoming part of the mainstream.
WHY WAS THE DECISION TO ADD BITCOIN TO THEIR MANAGED ASSET MADE?
Although bitcoin’s adoption is slowly gaining momentum with big tech companies flirting with the idea of accepting bitcoin payments, there have been strong reservations from traditional banks on the value of bitcoin, its volatility and how unregulated it is. The clapback from traditional banks are valid – no regulators, price is very volatile, has no ‘real, hard’ value.
However, the demand for bitcoin is increasing. 43% of adults in America own bitcoin, and when they wanted to buy bitcoin from exchanges such as redot and Binance, they did easily. Also, with big tech companies such as Facebook venturing into cryptocurrency, many banks are getting in on the bitcoin train before it leaves them behind.
At BNY Mellon, the decision to add bitcoin to their managed asset was influenced majorly by the institutional investors, the top investors in BNY Mellon.
Why were the investors keen on adding bitcoin to the bank’s managed asset?
Bitcoin’s price, like every other cryptocurrency, is very volatile, susceptible to bitcoin news and influencers opinions; one minute the price is high, the next it is falling drastically. The volatility of the prices of bitcoin and other cryptocurrencies rests on news and happenings around the cryptocurrency space. But, even with the high volatility, the price of bitcoin has held strong, and there are strong indications that the price will hit the $100,000 mark before the end of 2022. This is the reason BNY Mellon has bitcoin custody.
The remarkable bullish run in the bitcoin market informed these investors in the oldest bank in America to add bitcoin to BNY Mellon’s asset class.
For these investors, they see a future where bitcoin and cryptocurrency are a major part of our financial lives.
While the liquidity level of bitcoin isn’t as high as one would have expected, there are huge potentials for bitcoin to become the major mode of payment in the world.
There were rumours of Amazon flirting with the idea of accepting bitcoin payment, a claim the retail giants have refuted. Whichever way, there are companies accepting bitcoin payments, top real estate companies in the United States and Europe.
The potential of bitcoin and other altcoins going mainstream is high, very high.
HOW DOES BNY MELLON PLAN TO MANAGE BITCOIN
As an asset manager, BNY will help its customers who own bitcoin invest the bitcoin and give the customers returns, based on the agreement between the bank and the customer. To bolster the management of bitcoin, BNY Mellon developed a prototype version of the platform that’ll manage the bitcoins. This prototype, reports from the bank said, will also handle Treasuries and Stocks.
WHAT MAKES BNY MELLON’S ADOPTION OF BITCOIN IN ITS ASSET CLASS A MAJOR BITCOIN NEWS?
There are other banks in the world that offer bitcoin custody services. Banks such as Chime Bank in the United States, Wirex in the United Kingdom, Fidor Bank in Germany, etc., have bitcoin in their balance sheet and offer bitcoin custody services, but they aren’t major players in the banking industry.
But with BNY Mellon New York, the news of bitcoin being added to its asset class is huge because BNY Mellon is the first major bank to accept bitcoin as an asset. With Mellon Bank adding bitcoin to its assets, it opens the door for other banks to do the same.
If more traditional banks accept bitcoin and other cryptocurrency as an asset, the value of the coin will increase, and instead of bitcoin just being a store of value, which it majorly is now, it will become more valuable.
WHAT IS BNY MELLON NEW YORK’S LONG-TERM PLAN
There have been no limits to the number of cryptocurrencies the bank will manage and the number of said currencies that will be allowed. Thousands of cryptocurrencies exist, so it is important that BNY MELLON NEW YORK agree on which cryptocurrencies it will manage and for how long.
CHALLENGES THAT BNY MELLON NEW YORK WILL FACE WITH THIS ANNOUNCEMENT
Adding bitcoin to the bank’s asset class is great news, but how will the accountants manage this new asset?
Cryptocurrency prices are volatile; therefore, it is difficult for asset managers to effectively manage the assets without the high possibility of running into huge losses. Imagine the price of bitcoin falling by 50% because of a tweet from a media company or an influencer, and a customer wants to withdraw their bitcoin.
While the prospect of traditional banks offering bitcoin custody services is exciting, the peculiarities of this asset class make it harder to rush into. You can’t just buy bitcoin, give it to a bank to manage it for you and go to sleep! The bank will deal with a lot of financial complexities novel to the sector.
In light of the complexities of bitcoin and thousands of cryptocurrencies in the world, BNY Mellon has tasked some of the bank’s executives to oversee the integration of custody and management in the bank’s business.
WHAT IS NEXT FOR OTHER BANKS?
The future of bitcoin is bright. As more banks adopt bitcoin into their managed asset class; as more tech companies accept bitcoin and other cryptocurrencies as payment; as more countries make bitcoin official for paying for goods and services, there will be better reception from the general public.
This glorious possibility notwithstanding, Roman Regelman, the Chief executive of BNY Mellon’s asset-servicing business, said, does not mean most banks will jump on bitcoin and cryptocurrency. It will be another 3 to 5 years before traditional banks will have the necessary structure to incorporate bitcoin and other cryptocurrencies into their asset-servicing systems.
Still, the future does look bright, and we all can’t wait to live in the times.