Ray Alvarez
Reading time: 3 min
Date: 4th Aug 2020

Banks Holding Your Crypto — What Does It All Mean?

How comfortable would you be with your local bank holding on to your keys for your cryptocurrency? While the Office of the Comptroller of the Currency released a letter saying that national banks and federal savings associations can offer cryptocurrency custody services to clients, this is not a major shift in policy. However, the clarification does bode well for cryptocurrency and mainstream adoption in the U.S.

On July 22, the Office of the Comptroller of the Currency (“OCC”) released a letter detailing the regulator’s stance regarding certain areas on cryptocurrency that were unclear. The letter was in response to an anonymous bank’s question to the regulator regarding the authority of a national bank to provide cryptocurrency custody services for customers.

The OCC recognized three main reasons why custody services for cryptocurrency were seeing an increase in demand:

  1. The underlying keys associated with an amount of cryptocurrency is irreplaceable if lost. With approximately 20% of the total amount of Bitcoin lost forever due to misplaced keys, it is easy to imagine this scenario. (This claim is from an article in 2017, this number could be higher now)
  2. Banks may offer a safer means of storing a customer’s cryptocurrency. Here the OCC is pointing to cryptocurrency exchanges and their susceptibility to being hacked .
  3. Banks are interested in combining custody services with other custody activities such as asset and investment management.

The acting Comptroller for the OCC, Brian Brooks, stated:

“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.”

While this is a major step in mainstream adoption for cryptocurrency in the U.S., there are still more questions to be answered and discussion that will need to take place.

What does this mean for you?

At the current moment, banks being able to provide custody services for customers with cryptocurrency is not going to create a substantial change in how you manage your cryptocurrency assets.

Recently, Coindesk released an article regarding the same letter from the OCC. In summary, their article states that banks will not be rushing to hold cryptocurrency and that this move by the OCC will start more conversations on the topic. I would like to take a different stance here.

By offering clarification, the OCC has effectively opened the door to these services being integrated into banks in the near future. The clarifications provided in the letter are not unprompted, they were a response to a national bank’s request for clarification. This tells me that more banks are researching the possibility and outlining the framework on how they will be providing these services. We have seen over the years different banks and regulators change their stances on cryptocurrency and Bitcoin as a whole. It seems that banks are now accepting the reality that cryptocurrency assets will become at the very least a part of customers’ portfolios in the near future.

As Coindesk stated, “Banks won’t rush to hold crypto.” I believe the reverse argument is even more poignant. Cryptocurrency holders won’t rush to give banks their crypto. One of the foundational principles of cryptocurrency is the ability to be in control of your assets without having an intermediary, like a bank, between you and your financial autonomy. The way that the common cryptocurrency holder maintains that control is through the possession of their private keys. That being said, there will likely be a segment of the population that chooses to turn over their private keys to a bank for safekeeping. The added responsibility and risks associated with holding your own private keys do not appeal to everyone, and having the option to hand over your keys and cryptocurrency for safeguarding or asset management to a federally insured bank would not be the world’s worse option.

Feel free to carry on the discussion or ask questions below, I’ll answer any responses to the article!