The landscape of digital asset management is undergoing a seismic shift as traditional financial institutions begin to embrace cryptocurrency custody. Among the most notable developments is the impending entry of State Street and Citigroup—two of Wall Street’s largest custodian banks—into the crypto custody arena. This strategic pivot signals a broader institutional acceptance of digital assets and underscores a growing demand for secure, regulated storage solutions.
The Rise of Crypto Custody in Traditional Finance
Custodian banks have long served as the backbone of institutional investing, safeguarding trillions in equities, bonds, and alternative assets. Their core function—securely holding financial instruments on behalf of clients—is now expanding to include digital assets, driven by increasing demand from asset managers, hedge funds, and pension funds seeking exposure to cryptocurrencies like Bitcoin and Ethereum.
State Street, the second-largest custodian globally, has announced plans to launch its crypto custody service by 2026. Meanwhile, Citigroup, ranked fourth among global custodians, has also signaled strong interest in digital asset services, though it has not yet revealed a concrete timeline. Both institutions are actively building infrastructure and partnerships to support the secure storage and management of digital assets.
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Why Are Custodian Banks Turning to Crypto?
The primary driver behind this shift is institutional demand. As more traditional investors allocate capital to digital assets—especially following the approval of spot Bitcoin ETFs—there’s a growing need for trusted, compliant custody solutions. Unlike retail investors who may use exchange wallets, institutional players require enterprise-grade security, auditability, and regulatory alignment.
A State Street survey revealed that over 70% of institutional investors expect to increase their digital asset allocations within the next five years. To retain these high-value clients, custodian banks must evolve or risk losing market share to specialized crypto-native firms.
State Street’s Strategic Moves in Digital Assets
State Street has been methodically building its digital asset capabilities for years. In 2021, it launched State Street Digital, a dedicated division focused on blockchain innovation and tokenization. The following year, it partnered with UK-based Copper to develop a custody platform—but regulatory uncertainty around SAB 121 led to delays.
In 2023, the bank reignited its efforts by partnering with Taurus, a Swiss-based digital asset infrastructure provider. This collaboration aims to deliver a scalable, secure, and interoperable custody solution for institutional clients preparing for broader crypto adoption.
This phased approach reflects State Street’s cautious yet determined strategy: prioritize compliance, leverage proven technology partners, and align with evolving regulatory frameworks.
Citigroup’s Quiet Expansion in Digital Finance
While less vocal than some peers, Citigroup has made significant strides in digital assets. In 2022, it teamed up with Metaco—a leading crypto custody provider later acquired by Ripple—to enhance its digital asset infrastructure. It also launched the Citigroup Integrated Digital Asset Platform (CIDAP), designed to support asset tokenization, cross-border payments, and central bank digital currency (CBDC) experiments.
CIDAP exemplifies how legacy banks are reimagining their back-end systems to accommodate blockchain-based assets without compromising security or control.
Despite these advancements, Citi remains relatively conservative in its public messaging about crypto. However, internal investments suggest a long-term commitment to becoming a key player in the digital asset ecosystem.
How the End of SAB 121 Unlocked Institutional Access
For nearly three years, U.S. banks were effectively barred from offering crypto custody due to SEC Staff Accounting Bulletin 121 (SAB 121). This guidance required banks to record custodied crypto assets on their balance sheets, creating capital reserve challenges and regulatory risks.
Banks pushed back, arguing that holding crypto should be treated no differently than safeguarding physical securities. With mounting pressure from industry leaders and policymakers—and growing recognition of crypto’s role in modern finance—the SEC moved to rescind SAB 121 in early 2025.
👉 Learn how regulatory changes are accelerating institutional crypto adoption.
This reversal removes a major roadblock, enabling traditional custodians to enter the market without undue financial burden. It marks a turning point: digital assets are no longer fringe investments but legitimate components of institutional portfolios.
Other Custodians Already Leading the Way
While State Street and Citi are preparing for launch, others have already gained traction:
- BNY Mellon, the world’s largest custodian, became the first major U.S. bank to receive a SAB 121 exemption. It now supports custody for Bitcoin and Ethereum ETFs, serving both institutional and fund clients.
- Northern Trust, the fifth-largest custodian, entered the space in 2020 through its joint venture with Standard Chartered’s innovation arm, launching Zodia Custody—a regulated platform focused on institutional-grade security.
- Standard Chartered, though not among the top U.S. custodians, has emerged as a global leader in crypto infrastructure. Through Zodia, it offers custody, settlement, and compliance tools tailored for financial institutions.
These early movers demonstrate that integrating digital assets into traditional custody models is not only feasible but increasingly necessary.
What This Means for the Future of Finance
With regulatory barriers lifting and demand rising, the convergence of traditional finance and digital assets is accelerating. As more custodians enter the space:
- Institutional adoption will deepen, bringing greater liquidity and stability to crypto markets.
- Regulatory clarity will improve as policymakers work alongside established financial institutions.
- Investor confidence will grow, knowing their digital assets are held by trusted, audited entities.
Moreover, this shift could pave the way for broader innovations—such as tokenized stocks, bonds, real estate, and even private equity—built on blockchain rails but backed by traditional financial oversight.
Frequently Asked Questions (FAQ)
Q: What is crypto custody?
A: Crypto custody refers to the secure storage and management of digital assets like Bitcoin and Ethereum on behalf of clients. Institutional-grade custody includes encryption, multi-signature wallets, cold storage, and regulatory compliance.
Q: Why do institutions need crypto custody services?
A: Institutions require professional custody to meet risk management standards, ensure auditability, comply with regulations, and protect against theft or loss—challenges that personal wallets or exchanges cannot reliably address.
Q: Is SAB 121 completely gone?
A: Yes, the SEC officially rescinded SAB 121 in 2025 after extensive industry consultation. This allows banks to offer crypto custody without having to record custodied assets on their balance sheets.
Q: Can retail investors benefit from bank-led crypto custody?
A: Direct access may be limited initially, as these services target institutional clients. However, retail investors can benefit indirectly through ETFs and funds that use bank-backed custody solutions.
Q: How do banks ensure the security of stored cryptocurrencies?
A: Banks employ a combination of cold storage (offline wallets), multi-party computation (MPC), biometric access controls, real-time monitoring, and third-party audits to safeguard digital assets.
Q: Will all major custodians offer crypto custody soon?
A: While not guaranteed, the trend is clear. With BNY Mellon, Northern Trust, and now State Street moving forward, competitive pressure will likely push most major custodians to offer digital asset services within the next few years.
The entry of Wall Street’s biggest custodians into crypto custody isn’t just a business expansion—it’s a signal that digital assets have matured into a core component of global finance. As infrastructure strengthens and regulations evolve, we’re witnessing the foundation of a new financial system: one where traditional trust meets decentralized innovation.