- The SEC’s new rules enable banks to manage crypto, fueling RWA custody growth and adoption.
- Institutional investors gain confidence in crypto with secure, regulated custody services.
- SEC’s move could lead to more capital inflows and crypto integration into financial products.
The U.S. Securities and Exchange Commission (SEC) has streamlined the regulatory process, allowing banks to hold and manage cryptocurrency assets, which has spurred a rush by larger institutions to offer Real-World Asset (RWA) custody services. This recent policy change could mark a breakthrough in the legitimacy of cryptocurrencies in the traditional financial markets.
Institutional Custody Solutions for Digital Assets on the Rise
Major players like JPMorgan, Fireblocks, and Anchorage are spearheading the development of custodial solutions in the Real-World Assets (RWAs), which include Bitcoin and Ethereum. All these firms are increasing their efforts to satisfy the rising demand by institutional investors who seek safe ways to manage digital resources. Further, the SEC regulatory change allows banks and custodians to handle crypto, bridging the gap between the conventional finance sector and the evolving digital asset ecosystem.
Having spent years building out the legal foundations around crypto held by institutions, the race is now on to get market share. This introduces a potential for vast pools of capital flowing into crypto custody services, implying investor interest in the digital asset market.
The SEC’s move comes amid growing institutional interest in the crypto market and could draw in members who were earlier reluctant to invest due to regulatory fears. In addition, banks that offer RWA custody to their clients may experience an uptick in operations as these companies seek compliant and safe methods to hold their assets.
Onshore Crypto Custody Attracts Capital
The SEC’s ruling may result in large capital movement onshore to the U.S., as institutional investors suggest a stable and regulated market to hold their crypto assets. By permitting banks, the SEC promotes confidence in crypto assets as viable investments within traditional financial structures.
The regulatory adjustment also expands crypto assets into more normalized financial instruments, including ETFs and pension funds, dissolving further boundaries between traditional and non-traditional assets. Institutional investors are already considering how to incorporate crypto into their portfolios. Having a means to store such assets in a controlled environment opens the door for even more widespread adoption.
Digital asset management tools may also become more innovative due to the demand for custody solutions. Established firms such as JPMorgan, which have long been cautious of the cryptocurrency market, are currently spending vast sums on RWA solutions to satisfy their customers’ needs. Nonetheless, this change might also be accompanied by various challenges, and custodians will have to manage regulatory requirements and protect digital assets.
Related: SEC Mobilizes to Modernize Crypto Rules, Embracing Trump-Era Policies
SEC’s Role in Crypto’s Legitimacy and Institutional Integration
This latest move from teh SEC sets a precedent for the crypto regulations in the US. Earlier, the financial industry and regulators were skeptical of crypto, but with market sentiment, the aim to relax the approach around crypto assets held by banks indicates a new period of acceptance.
This step may be critical to integrating cryptocurrencies into mainstream finance, making them more attractive to institutional investors who demand high regulatory scrutiny. The push by RWA custody services into the institutional sphere is an important step. However, the future viability of such systems on a broad scale and their capabilities of supporting large investors have yet to be addressed.
