Banks have demonstrated a growing interest in the cryptocurrency sector in recent years. While their initial focus was primarily on traditional finance, the continued expansion of the blockchain and crypto markets has prompted them to shift their attention (at least a major part of their attention) towards alternative financial products and services. As a result, diversifying their portfolios to include crypto-related services has become essential for financial institutions.

Global banking regulators recently approved templates that will require banks to disclose their exposure to crypto assets starting in January 2026. This announcement was made in early July, highlighting the regulatory focus on increasing transparency in the crypto market.

These disclosure templates aim to establish prudential requirements that enhance market control, stability, and information availability, while providing a clear framework for managing cryptocurrency assets.

This regulatory decision stems from discussions held by the Basel Committee on Banking Supervision (BCBS), which consists of 45 members from various jurisdictions, including central banks and regulatory authorities.

Additionally, the SEC has recently introduced exceptions to one of its strict accounting rules implemented in 2022, which previously hindered banks from offering Bitcoin and crypto custody services. As a result, many banks were forced to shut down their blockchain and crypto operations or scale back their businesses. With the new exceptions, some large banks that meet specific requirements can now bypass this rule and provide crypto custody services. However, other regulations continue to pose challenges for banks seeking to comply with them.

Banks Entering The Space Through Crypto Custody Solutions

The trend of banks getting into crypto through crypto custody solutions is already underway, with many banks beginning to offer custodial services. By expanding their financial services with the so-called alternative finance niche, banks are now allowing customers to store digital assets directly with them.

Leveraging their established trust and security infrastructure from the traditional finance sector, banks aim to attract crypto investors and clients who might be wary of using other platforms or third-party exchanges.

Major banks such as JPMorgan, BNY Mellon, and State Street have either started offering or are exploring crypto custody services, signalling a strong commitment and presence in the crypto and blockchain space. 

Banks are very strong when it comes to compliance with Know Your Customer (KYC) and Anti-Money Laundering (AML) frameworks as they already have well-established procedures and mechanisms in place. This strength could make crypto more accessible to retail customers through banks whilst ensuring regulatory adherence. Note that some banks already offer compliant crypto products, and there is a tendency for this number to continue increasing (аnd again, we would like to remind you that certain current and future regulations apply for banks and banks must ensure compliance).

Banks Outlook On Crypto Market Penetration

We have gathered numerous credible sources and compiled data indicating that anticipation for wider adoption by banks is supported by most of the available research and market projections on this topic. As mentioned earlier, cryptocurrency custody services are among the primary options banks will rely on to enter this space over the short to medium terms. We have summarized the data below:

• Short Term (1-3 years): Expect to see more banks offering crypto custody and trading services, particularly to institutional clients. The rollout of stablecoins and initial blockchain-based financial products will continue.
• Medium Term (3-5 years): Broader integration of crypto services into consumer banking, more sophisticated blockchain products, and increased interaction with CBDCs.
• Long Term (5-10 years): Widespread adoption of crypto services by banks, including full integration with digital currencies, mainstream use of blockchain-based financial products, and potentially, a redefined role for banks in the financial system due to decentralized technologies.

Vaultody vs Banks - Which Crypto Custody Solution Provider Is The Better Choice?

Undoubtedly, banks enjoy a high level of trust and are regulated by numerous authorities and governing bodies within the traditional finance sector. Meanwhile, non-banking custodians may face challenges in obtaining a license to operate as a bank. Although banks have larger resources, the advantages they hold as custodians are not without limits.

On the other hand, banks will also face a challenging path, as they must obtain various certificates and licenses, and comply with numerous regulations, in order to be allowed to operate with crypto assets and offer crypto-focused services to their clients.

From the non-banking perspective for platforms such as Vaultody, there is no actual need to function as a bank to ensure transparency, security, and regulatory compliance. As an EU-licensed and fully regulated entity with ISO certification, Vaultody guarantees that it operates under strict control, ensuring that customers' funds remain safe at all times, regardless of circumstances (yes, even in the very rare event that something happens with Vaultody's business, customers will always retain possession of their funds).

The major difference between Vaultody and banks lies in the technical knowledge and experience of our team, who has been actively involved in the crypto and blockchain industry for over 10+ years. Our vault and custodial solution technology are areas of expertise we have specialized in during the last decade and are our biggest strength, similar to how traditional finance is a core competence for banks.

Another key difference is the versatility of Vaultody, allowing customers to opt-out for custodial, co-custodial or non-custodial solution format. Combination of all three is also possible, depending on the use case of the client.

And the icing on the cake is Vaultody's MPC-powered vault types: General, Smart, and Automation Vaults. As part of our solutions we offer total flexibility, adaptable to any case solutions, and options such as multi-level approval for transactions, team-based vault management, and automated transaction management - all with the most advanced market protection for your funds. Discover how our vault types compare in these two previous blog posts: here and here to see which vault is mapping your needs best, or get in touch with our team.

What Custodial Options Will Be Banks Given, Considering The Regulations? 

If we examine the options that banks will be given, there are three possible scenarios that they may decide to go with:

Scenario 1: Acquisition of non-bank custody providers

If banks acquire non-bank crypto companies, they will face challenges integrating their systems, as non-bank firms don’t operate under the same conventional finance regulations. This can create risks, especially since many non-bank crypto companies rely on cloud-based systems.

Scenario 2: Banks creating their own custodian solutions

Banks can offer crypto custody developed in-house. This approach takes time, resources, knowledge but could potentially reduce security risks associated with relying on third-party vendors. While banks could quickly launch crypto custody by combining existing services, their strict third-party risk management requirements and regulations make this option less appealing.

Scenario 3: Partnership

If a bank finds a Bitcoin and crypto custodian technology provider designed to meet banking needs and third-party risk management requirements, it would be beneficial for the bank to consider a partnership with that custodian. This custodian would also adhere to updated regulations and ensure customer asset ownership during any financial resolution. 

Now that we’ve discussed the downsides of banks attempting to specialize in crypto custody, as well as the benefits of working with a vendor that has strong experience and regulatory compliance, the cooperative work between banks and custodian providers seems very logical.

Vaultody is precisely the type of custodian that can collaborate with banks to provide custodial services to both banks and their organizational clients (the latter is possible by renting out our solutions, allowing them to function as on-premise services integrated into the banks' infrastructure). With its advantages over traditional banking structures in custody services, Vaultody stands out as the ideal custodial partner.

Can Vaultody accelerate banks` presence in the crypto sector?

The answer is “yes”, and following the logic from the section above, a potential partnership scenario with us could provide the following:

• Immediate market entrance: Banks gain immediate entry into this multi-trillion market through our crypto custodial technology, saving years of development and substantial resources. This also removes the burden of obtaining licenses required to comply with crypto regulations.
• Zero risks for banks & banks` clients: Vaultody ensures that banks and their clients maintain 100% control over their assets. Vaultody does not, and will never, store private keys, eliminating a significant point of vulnerability that other platforms may face. Why is there no risk? Because MPC nodes remain on the client’s side, ensuring customers always have full control over their assets.
• Superior alternative to exchange platforms: As a licensed and qualified custodial technology provider, Vaultody mitigates the risks typically associated with crypto exchanges. The industry has seen numerous instances of exchanges declaring bankruptcy, engaging in dubious practices, and lacking sufficient protection mechanisms for client funds, resulting in hacks and losses amounting to billions. With Vaultody, these concerns are eliminated - your money, your keys. In fact, we encourage exchange platforms to rely on our services, in order to protect their own and their clients` funds from all kinds of vulnerabilities.
• Market-leading security mechanisms: Vaultody’s technology is protected by Multi-Party Computation (MPC) and includes additional security measures, such as hardware enclaves, the Vaultody Approver app (which functions like 2FA but offers enhanced control over vault management), as well as backup and restore capabilities, among many other features.
• Support for 30+ blockchain protocols: Vaultody currently supports over 30 networks, enabling the management of a wide range of assets. Key blockchains we support include Bitcoin, Ethereum, Tron, Polygon, BSC, Solana, and many others.
• Customization and White-label Solutions: Vaultody's custodial technology can be fully customized to meet the specific requirements of any bank. Additionally, it can be offered as a whitelabel solution, allowing banks to integrate it under their own brand.

We are eager to discuss how we can meet your institutional crypto custody needs. We offer a range of technological solutions, including custodial, co-custodial, and non-custodial options, along with various partnership terms. 

For more information, please contact our team at [email protected]!