Published: July 28th, 2020
An announcement by the Office of the Comptroller of the Currency (OCC) on Wednesday, July 22, influenced the price of Bitcoin positively. Within just 24 hours of the notice, the cost of the world’s first cryptocurrency had shot up more than 5%.
The Office of the Comptroller of the Currency (OCC) announced on Wednesday, July 22, that banks in the U.S. can now hold cryptocurrencies. This announcement essentially okayed these banks to provide crypto custodial services.
In the letter, the OCC implies that national banks and their counterparts federal saving associations are now authorized to provide services that include holding unique coded keys that guard cryptocurrency wealth, for their customers.
The OCC’s action is a response to a request made by an unidentified entity that asked the OCC to provide direction on the authority of banks in offering cryptocurrency holding services. OCC is an independent agency within the Department of the Treasury of the U.S. that charters, regulates, and supervises national banks and all other thrift institutions.
The OCC recognized that exchanges already provide custodial services. However, the letter stated that banks could offer better security. Many banks have in the past expressed interest in providing the solutions that the OCC spelled out in its message. However, the ambiguity of the compliance articles that guide the cryptocurrency space kept them at bay.
The increased sense of security that banks inherently have will be important to a specific class of customers such as hedge fund managers and investment advisors working with private equity funds. The large sums that such customers work with make bank custody services a lot more convenient and secure compared to the situation in cryptocurrency exchanges.
Within 24 hours of this notice, the price of Bitcoin shot up more than 5% to reach a daily high of $9,664. Also, the entire cryptocurrency market surged with Ether (ETH) recording a substantial rally of more than 12%.
A formal statement released by Brian Brooks, the acting comptroller of the OCC, allowed banks to serve millions of American residents with cryptocurrency custody services. Brooks said in the statement that banks must ensure that they meet the needs of the current day customer by offering both safe deposit boxes and virtual vaults.
His notice implied that banks can now extend their services to include securing their most valuable holdings, which in today’s world include cryptocurrencies. Effectively, this statement paves the way for banks across the nation to dive into the cryptocurrency space and start offering their clients with tools to invest in digital assets.
Consistent growth in institutional investment in Bitcoin has pushed the cryptocurrency market upwards throughout 2020. Grayscale, a cryptocurrency and digital assets investment and management firm, reports that it has processed almost $1 billion in influx to its crypto-related products. Grayscale, which runs the Grayscale Bitcoin Trust, posted nearly $1.5 billion in total investment in the first half of 2020 alone.
Because of the OCC’s announcement, crypto custodial solutions may provide an alternative to the myriad regulated Bitcoin investment machines currently existing. Also, investors are bound to read the new development as bullish since it carries governmental accreditation.
Institutional investors may be pushed to put more investment in the cryptocurrency space in the long-term as a result. The announcement by the OCC, though unexpected, charged an abrupt demand for the vital crypto coins.
The head of research at CoinCenter, Peter Van Valkenburgh, said that the OCC’s statement only confirms the obvious; that allowing centralized entities to provide safekeeping and storage of crypto coins was only a matter of when. Van Valkenburgh added that such services are essential, and the agency’s notice is good news to everyone.
Experts think this new development will heighten competition among service providers. National banks that step in the space now stand to help by allowing more traditional institutional investors to participate effectively in the cryptocurrency space.
While the letter does not convey any new policy shift, Ross Delston, a lawyer based in Washington, D.C., said it offers added recognition of cryptocurrencies by a notable federal banking regulator.
Overall, the industry received the news positively. Most experts believe that the action will invite more inflow into the crypto space in the medium-term.
However, Jake Chervinsky, in-house counsel for Compound Labs, said that OCC is just one of the many regulators with eyes in the cryptocurrency space. He added that this news should not be received with so much glee considering that Brooks is only serving in an acting position. Chervinsky said that the agency might not confirm Brooks into the comptroller’s job. If that situation arises, whoever replaces him may come with a different opinion, he said.
Noting that banks offer their products and services according to their customers’ demands, the attorney warned colleagues in the industry from being too optimistic. He said the banks’ modus operandi does not guarantee long-term support for cryptocurrency solutions.
He added that banks are businesses just like any other, and so ultimately, they will prioritize their customers’ needs. Chervinsky concluded that for now, the best approach is to watch and see what happens eventually. He is afraid that most investors are only using OCC’s announcement to inspire the crypto markets.
The attorney’s concerns, however, fall under the provisions that OCC has thought out. In the announcement, the agency said that banks would offer permitted services to cryptocurrency holders and businesses.
The letter, however, stressed that such banks have to manage risks associated with the services effectively, and they must comply with anti-money laundering regulations and other such requirements.
Bitcoin surged by about 5% following what is possibly the most significant endorsement by a federal agency. On Wednesday, July 22, the Office of the Comptroller of the Currency announced that national banks and thrift institutions can now provide cryptocurrency custodial services for their customers. The letter from OCC gives banks the avenue to contribute to cryptocurrency growth. And, its importance lies in the fact that the crypto environment has lauded by many as the future of currency.