The financial landscape is undergoing a seismic shift as major U.S. banks—long seen as pillars of traditional finance—begin to embrace digital assets. Institutions like State Street, BNY Mellon, and Citigroup are now actively developing cryptocurrency services tailored for institutional clients, including hedge funds, asset managers, and large-scale investors. This strategic pivot comes amid a rapidly evolving regulatory environment under the Trump administration, which has rolled back previous restrictions and opened the door for banks to offer digital asset custody and related financial services.
This movement marks a pivotal moment in the convergence of Wall Street and blockchain technology, potentially reshaping the balance of power in the crypto ecosystem.
The Rise of Institutional Crypto Custody
At the heart of this transformation is crypto custody—the secure storage and management of digital assets on behalf of clients. While it operates behind the scenes, custody is foundational. It enables banks to expand into higher-value services such as trading, lending, and prime brokerage for crypto-native activities.
Currently, crypto-first firms like Coinbase, Anchorage Digital, and BitGo dominate the custody space. However, traditional financial giants are stepping in with strong infrastructure, regulatory credibility, and deep client relationships.
State Street, one of the world’s largest custodians of stocks and bonds, plans to launch its digital asset custody service by 2026, pending regulatory approval. The bank aims to provide not only custody but also transfer agency services—tracking ownership of tokenized securities—and support for collateral management using blockchain-based assets.
“Our roadmap includes phased delivery of these services starting with custody, subject to regulatory greenlight,” said Donna Milrod, Chief Product Officer at State Street.
Meanwhile, BNY Mellon, State Street’s top competitor, has already begun offering limited custody for Bitcoin and Ethereum, with plans to expand to a broader range of tokens. The bank is also exploring custodial solutions for tokenized money market funds and other digital representations of traditional assets.
“Custody acts as a catalyst for all adjacent services,” said Caroline Butler, Global Head of Digital Assets at BNY Mellon. “It positions us at the center of the tokenization revolution.”
Citigroup Joins the Digital Asset Race
Citigroup is also advancing its digital asset strategy, evaluating both in-house development and partnerships to scale its crypto custody capabilities. A spokesperson confirmed that the bank recognizes accelerating institutional adoption and is actively working with clients on asset tokenization and digital asset custody.
“Citigroup sees growing demand from institutional clients who want secure, regulated access to digital assets,” the spokesperson said. “We’re building capabilities that align with our clients’ evolving needs.”
This institutional push could significantly boost capital inflows into the crypto market, currently valued at approximately $3.2 trillion, with Bitcoin and Ethereum accounting for nearly 70% of total market capitalization.
Regulatory Shifts Fueling Adoption
Until recently, U.S. banks hesitated to engage directly with cryptocurrencies due to regulatory uncertainty and perceived risks tied to volatility and security. However, early actions by the Trump administration have changed the calculus.
In its first week, the administration directed the Securities and Exchange Commission (SEC) to rescind Biden-era accounting guidance that made holding crypto prohibitively expensive for banks due to strict reserve requirements. Simultaneously, federal banking regulators—including the Federal Deposit Insurance Corporation (FDIC)—have shifted from caution to facilitation, creating clearer pathways for banks to participate in crypto activities.
These changes reduce compliance burdens and open doors for banks to offer crypto-related services without fear of regulatory backlash.
Tokenization: The Next Frontier
Beyond custody, banks are positioning themselves at the forefront of asset tokenization—the process of converting real-world assets like bonds, equities, or fund shares into blockchain-based tokens. This innovation promises greater liquidity, faster settlement, and enhanced transparency.
BNY Mellon is actively exploring how its custody infrastructure can support tokenized financial products. Similarly, State Street aims to serve firms issuing tokenized assets by offering integrated custody and transfer agency services.
Tokenization also unlocks new use cases, such as using digital assets as collateral in trading or financing arrangements—making them more functional within traditional financial workflows.
Trading and Lending: What Comes Next?
Once custody is established, banks can expand into crypto trading, lending, and prime brokerage services—core revenue drivers in traditional finance. These services would allow banks to serve hedge funds and institutional traders directly in the digital asset space.
Goldman Sachs made headlines in 2021 by launching a crypto trading desk, but it currently only trades crypto derivatives, such as cash-settled futures listed on CME, rather than spot Bitcoin or Ethereum. Similarly, Citigroup facilitates client trades in CME Bitcoin futures on an agency basis but does not deploy its own capital.
Direct spot trading remains a more complex challenge due to heightened regulatory scrutiny and capital requirements. For example, Goldman Sachs would need approval from the Federal Reserve and a BitLicense from the New York State Department of Financial Services before engaging in direct crypto trading.
“Expanding into spot markets requires careful evaluation of commercial viability,” said a source familiar with Goldman’s digital asset plans. “It’s not just about permission—it’s about profitability and risk alignment.”
Can Crypto Firms Compete?
As Wall Street moves in, crypto-native companies are adapting. Firms like Coinbase are advocating for regulatory frameworks that allow banks to partner with them rather than build everything internally.
Earlier this month, Coinbase submitted a letter to U.S. banking regulators urging them to permit banks to outsource crypto custody and trading operations to qualified digital asset firms. Brett Tejada, Head of Coinbase Institutional, is currently holding intensive meetings with ten major U.S. banks to explore collaboration opportunities.
This partnership model could create a symbiotic ecosystem: banks bring trust and client access; crypto firms provide technical expertise and infrastructure.
Frequently Asked Questions (FAQ)
Q: Why are banks entering crypto now?
A: Regulatory easing under the Trump administration has reduced barriers, making it feasible for banks to offer crypto custody and related services without excessive compliance costs.
Q: What is crypto custody?
A: It’s the secure storage and management of digital assets on behalf of institutional clients—a critical foundation for broader financial services.
Q: Will banks replace crypto companies?
A: Not necessarily. Many banks may partner with existing crypto firms rather than build everything from scratch, fostering collaboration over competition.
Q: Are banks already trading cryptocurrencies?
A: Most are not trading spot crypto directly. Instead, they focus on derivatives like futures. Direct trading would require additional regulatory approvals.
Q: What role does tokenization play?
A: Tokenization converts real-world assets into digital tokens on blockchains, enabling faster settlement, improved liquidity, and new financial products.
Q: How could this impact the crypto market?
A: Bank involvement could bring trillions in institutional capital into crypto, significantly boosting adoption and market stability.
👉 Learn how institutional adoption is driving the next wave of growth in digital assets.
Conclusion
The entry of Wall Street banks into cryptocurrency services signals a maturation of the digital asset ecosystem. With BNY Mellon, State Street, and Citigroup leading the charge in custody and tokenization, traditional finance is no longer on the sidelines—it’s becoming a core participant.
While challenges remain around regulation, risk management, and commercial viability, the momentum is undeniable. As banks build out their digital asset capabilities, they pave the way for deeper integration between legacy finance and blockchain innovation—ushering in a new era of institutional crypto adoption.