Traditional Banks Reclaim the Crypto Custody Arena: A Strategic Shift in Digital Asset Management

The institutional crypto custody market is undergoing a seismic shift as traditional banks re-enter the digital asset space, leveraging their regulatory expertise and global infrastructure to compete with crypto-native custodians. From 2023 to 2025, major banks such as BNY Mellon, State Street, Citibank, and JPMorgan have launched or expanded custody services, signaling a strategic pivot toward digital assets. This move is driven by surging institutional demand for secure, regulated solutions to manage Bitcoin, stablecoins, and tokenized securities, with the market projected to reach $3.28 billion in 2025, according to a SafeHeron report.

Strategic Re-entry: Banks Leverage Compliance and Infrastructure

Traditional banks are capitalizing on their established trust and compliance frameworks to address gaps in the crypto custody landscape. For instance, US Bank resumed Bitcoin custody operations in 2025 after a four-year hiatus, citing eased regulatory oversight and rising demand for Bitcoin ETFs, according to an Investax review. Similarly, BNY Mellon and JPMorgan have integrated advanced security protocols such as multi-party computation (MPC) and Trusted Execution Environments (TEE) to safeguard digital assets. These technologies eliminate single points of failure and ensure real-time transaction authorization, addressing institutional concerns about theft and operational risk.

Partnerships with crypto-native firms are also accelerating banks' entry. US Bank's collaboration with NYDIG, for example, combines the bank's regulatory credibility with NYDIG's Bitcoin infrastructure, creating a hybrid model that bridges traditional finance and digital assets, Investax reported. Meanwhile, Citigroup and Deutsche Bank are exploring stablecoin custody and cross-border payment solutions, positioning themselves at the intersection of legacy systems and tokenized economies, as noted in a PYMNTS article.

Regulatory Tailwinds Fuel Expansion

Regulatory clarity has been a critical enabler for banks. The U.S. Securities and Exchange Commission's (SEC) repeal of SAB 121 and the end of the Federal Reserve's crypto supervisory program have reduced compliance burdens. In early 2025, federal agencies issued joint guidance on risk management for crypto-asset safekeeping, further legitimizing institutional participation, according to a FDIC press release. These developments align with global trends, such as the EU's Markets in Crypto-Assets (MiCA) Regulation, which provides a framework for tokenized asset issuance, per Investax's coverage.

The regulatory environment has also spurred innovation. Banks are now offering insured cold storage, segregated bank accounts, and real-time API integrations to meet institutional-grade security standards. For example, BNY Mellon's custody model includes individual crypto wallets and insurance coverage, addressing concerns about asset segregation and loss, as described by Investax.

Market Dynamics: Banks vs. Crypto-Native Custodians

While crypto-native custodians like Coinbase Custody, BitGo, and Anchorage Digital dominate in technological agility, traditional banks are closing the gap. Coinbase, for instance, insures its cold storage holdings up to $320 million and offers bundled services such as staking and tax reporting. However, banks are countering with their regulatory alignment and institutional trust. A 2025 survey revealed that 91% of institutional investors prioritize compliance with anti-money laundering (AML) and know-your-customer (KYC) frameworks, a domain where banks excel, according to Investax.

Market share remains contested. Coinbase Custody alone secures custody for eight of the top ten public companies holding Bitcoin and controls over 80% of crypto ETF assets, according to a Financial News analysis. Yet, traditional banks are gaining traction: Citi's foray into stablecoin custody and JPMorgan's exploration of tokenized corporate treasuries highlight their ambition to capture cross-border payment flows, as reported by PYMNTS.

The Future: Hybrid Models and Tokenized Assets

The custody landscape is evolving toward hybrid models, where banks and crypto-native custodians coexist. Institutions are adopting multi-layered strategies, using MPC wallets for liquidity needs and insured cold storage for bulk holdings, a trend covered by PYMNTS. This trend is amplified by the rise of tokenized real-world assets (RWAs), which reached $20 billion in Q1 2025. BlackRock's BUIDL fund, Fidelity's blockchain-based money market fund, and Apollo's tokenized private credit offerings underscore the demand for custody solutions that balance compliance with innovation, as Investax describes.

For investors, the re-entry of traditional banks into crypto custody represents both opportunity and caution. While banks offer regulatory safety nets, crypto-native custodians remain agile in adapting to the fast-paced digital asset ecosystem. The key differentiator will be the ability to integrate tokenized assets into existing financial infrastructure-a challenge where banks' global reach and crypto-native firms' technical expertise may converge.

Conclusion

Traditional banks are no longer on the sidelines of the crypto custody race. By combining their compliance prowess with cutting-edge security technologies, they are reshaping the institutional digital asset landscape. However, the market's exponential growth-projected to hit $16.42 billion by 2029, per a Business Research Company report-demands continuous innovation. For investors, the strategic re-entry of banks signals a maturing market where trust, regulation, and technological agility will determine long-term winners.