Big banks are nudging the SEC for a slice of sweet Bitcoin ETF action

The banking associations argued that U.S. banks were “notably absent” as asset custodians for Bitcoin ETFs, despite them playing that role for other ETPs.

Major banks and financial institutions in the United States are pushing the Securities and Exchange Commission to readjust its definition of crypto assets — which could allow them to play a larger role in crypto, such as acting as custodians to the recently approved spot Bitcoin exchange-traded funds.

On Feb. 14, a trade group coalition comprising the Bank Policy Institute, American Bankers Association, Financial Services Forum, and Securities Industry and Financial Markets Association pled their case in a letter to SEC Chair Gary Gensler.

The group highlighted the recent approval of spot Bitcoin exchange-traded products in the U.S., noting that American banks were “absent” from the approved products as asset custodians.

“The Commission recently approved 11 Spot Bitcoin ETPs, allowing investors access to this asset class through a regulated product. However, notably absent from those approved products are banking organizations serving as the asset custodian, a role they regularly play for most other ETPs.”

The letter requested that the SEC consider modifications to Staff Accounting Bulletin 121 (SAB 121), issued in March 2022 which provides guidance arou accounting for crypto asset custody obligations.

They noted that it has been two years since the issuance of the guidance, and there have been “several relevant developments” during the period, including approval of spot Bitcoin ETFs.

The current guidance requires banks to hold crypto assets on their balance sheet, which makes it costly and hinders their ability to provide crypto custody services at scale.

The group has now requested the SEC narrow the definition of crypto assets in SAB 121 to exclude traditional assets recorded on the blockchain. This would prevent assets like tokenized deposits from falling under the strict crypto guidance.

They also request exempting banks from the on-balance sheet requirements but maintaining the disclosure requirements, allowing them to engage in certain crypto activities while still providing transparency to investors.

Related: Gold ETFs bleed $2.4B so far in 2024 as Bitcoin ETFs hit record volumes

Bitwise chief investment officer Matt Hougan on X said the letter suggests that Bitcoin ETFs have changed the “tone around crypto regulation in Washington,” others commented it was a clear sign that banks are signaling interest in joining the “digital finance wave.”

“US banks, left off key bitcoin ETF roles, are pushing SEC to tweak guidance around holding digital assets,” summed Bloomberg ETF analyst Eric Balchunas.

That didn’t take long.

If you were wondering if bitcoin ETFs were going to change the tone around crypto regulation in Washington, here’s your answer. https://t.co/0mvS3rPPHl

— Matt Hougan (@Matt_Hougan) February 15, 2024

Meanwhile, weekly Bitcoin newsletter author “Bitcoin Therapist” added to the sentiment:

“Bankers are getting pissed they can’t hold spot Bitcoin ETFs for their customers. The Q1 FOMO is already driving them mad.”

According to preliminary data from Farside, total aggregate inflows to the newly launched spot Bitcoin ETFs have just surpassed $4 billion despite an acceleration in the outflows from Grayscale.