Ryze Recap 7/22: US Banks Can Now Hold Bitcoin For Clients

It’s Wednesday, July 22nd. If you’re new here— Ryze Recaps is a newsletter synthesizing the biggest news Bitcoiners need to know, in 2 mins or less.

Usually, we send these out in the morning. Today, we’ve got a special afternoon edition with some breaking news.

Federal Government Allows US Banks to Custody Bitcoin and Other Crypto Assets

Earlier today, the Office of the Comptroller of the Currency (OCC), a federal agency overseeing banks, has announced that all national banks and savings associations are now permitted to custody crypto-assets. This means that retail banks such as Chase and Bank of America will be able to hold crypto on behalf of their clients.

Some context:

  • Since they aren’t physical assets, custody of crypto-assets like Bitcoin relies on the storage of unique private keys (strings of letters and numbers) that allow transactions to occur with those assets. Banks have been able to hold on to cryptographic keys and digital certificates since 1998, as part of their safe deposit services. The OCC’s new mandate can be viewed as an extension of this existing rule applied to the private keys that represent ownership of cryptocurrencies.

What they’re saying:

  • “Providing custody services for cryptocurrency falls within these longstanding authorities to engage in safekeeping and custody activities…A bank that provides custody for cryptocurrency in a non-fiduciary capacity would essentially provide safekeeping for the cryptographic key that allows for control and transfer of the customer's cryptocurrency.” —OCC Official Letter

  • “This opinion clarifies that banks can continue satisfying their customers’ needs for safeguarding their most valuable assets, which today for tens of millions of Americans includes cryptocurrency.” —Brian Brooks, Acting Comptroller (more on Brooks from 6/15)

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Why it matters:

  • This move will inadvertently be met with backlash from the crypto community. Bitcoin was created in 2008 as a way to exit the existing financial system and start a new one that isn’t controlled by centralized entities. Although big banks taking custody of crypto-assets isn’t quite aligned with the beliefs of many crypto investors, it ultimately makes it easier and arguably safer for everyday consumers to store their crypto-assets.

  • “Be your own bank” and “not your keys, not your coin” are common phrases among the Bitcoin community conveying the notion that money, especially crypto, isn’t actually yours unless the assets are in your custody. However, just like holding your own life savings in physical cash or paper stock certificates isn’t practical (or advisable) for most consumers, being completely responsible for your own private keys doesn’t make sense for most crypto investors. If you lose track of your private key and don’t have a backup, the assets associated with that key are lost forever.

  • The crypto custody industry has been booming over the past couple of years, with over a dozen companies providing secure storage of crypto-assets to institutions and wealthy individuals. Banks entering this space enhances that competition to provide better services to end-users at better prices. This also further legitimizes crypto for traditional institutional investors such as pension funds, endowments, and wealth managers, some of which are required to only use nationally chartered banks.

Where this might go:

  • Accepting that full self-custody doesn’t work for everyone, multi-signature or collaborative custody could eventually be a middle ground in which the bank doesn’t unilaterally have control of a client’s crypto. In this scenario, the user is still protected in the event that they lose their private keys.

  • Banks could become an easy way for consumers to acquire stablecoins. Instantly going from Dollars in a bank account to USDT or USDC, then sending those stablecoins anywhere to interact with the crypto ecosystem, could be a game-changer in terms of user experience.

That’s all for today, we’ll be back again with another Ryze Recap!

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Written by Ryze Financial— helping you understand and invest in Bitcoin, on your own terms.