Digital asset custody: A strategic imperative for banks

No longer relegated to speculative trading or niche financial circles, digital assets have become central to discussions on banking strategy, infrastructure, and long-term growth. As a foundational service that banks are uniquely positioned to offer, digital asset custody sits at the heart of this shift. 

The custody of digital assets, including crypto, is no longer just an opportunity – it is a strategic necessity for banks that intend to remain competitive, relevant, and trusted in a rapidly digitizing economy. Mainstream adoption is underway, with one in five US adults now owning digital currency, underscoring both the scale of opportunity and the urgency for institutions to act, as the window for banks to be among the first movers is closing quickly.¹

 

From the periphery to the core

In recent years, digital assets have transitioned from volatile curiosities to integrated components of institutional portfolios. According to recent projections, the digital asset custody market is expected to exceed $16 trillion by 2030, driven by a compound annual growth rate (CAGR) of over 33.4%.1 While this growth is propelled by increasing institutional adoption, it is also a response to rising customer demand. 

A recent study by lending platform provider Baker Hill found that 70% of Gen Z and Millennials would switch banks for superior digital asset services.² The expectations of these digital-native consumers regarding convenience, transparency and 24/7 access are reshaping the future of financial services delivery. 

Millennials, many of whom have embraced digital assets as part of a broader investment philosophy, are seeking mobile-first experiences and seamless integration with traditional banking tools.³ Gen Z, perhaps the most embedded in the creator economy, often earns income in digital assets and values speed, simplicity, and cultural relevance.⁴ 

However, the demand for digital asset services is not confined to younger demographics. For Baby Boomers, digital assets represent a potential vehicle for legacy transfer and wealth preservation.⁵ Their interest is conditional on institutional trust, regulatory backing, and estate integration.⁶ Gen X, typically balancing investment diversification with retirement planning, views crypto custody as a means to consolidate and simplify financial management.⁷

 

The opportunity for banks as trusted infrastructure

Fintechs and digital-native platforms are leading innovations in digital asset custody, rapidly deploying user-centric solutions and responding to this shift in demand. At the same time, traditional banks account for only a small portion of this business, with many still developing capabilities through partnerships, pilot programs and infrastructure investments.^8,9  

However, banks can address this imbalance and close the gap by leveraging the trust they have accrued, their regulatory credibility and their infrastructure to offer secure and scalable custody services. Consumers want to know they can rely on custody solutions that are secure, convenient, and institutionally credible – and ideally offered by their primary financial institution. 

 

Regulatory easing has given added momentum

There has been significant regulatory easing around digital asset custody, and what was once a prohibitive policy landscape is becoming increasingly pragmatic and structured. 

In the US, the Securities and Exchange Commission’s Staff Accounting Bulletin 121 (SAB 121), which had imposed significant accounting burdens on entities safeguarding crypto assets, has been rescinded. Its replacement, SAB 122, reduces the accounting complexity and capital constraints of custody operations.¹⁰ Meanwhile, the Office of the Comptroller of the Currency (OCC), via OCC Interpretive Letter 1183, has affirmed that federally chartered banks can engage in crypto custody services under sound risk management principles.¹¹

Federal Reserve guidance has also eased. State member banks no longer need pre-approval to engage in digital asset activities, enabling faster deployment of custody services and helping drive further mainstream adoption, as David Sacks, White House AI & Crypto Czar has acknowledged.¹²

Outside the US, the European Union’s Markets in Crypto-Assets (MiCA) regulation has set a precedent by defining clear operational and licensing standards.¹³ US institutions offering cross-border services will inevitably need to align with these frameworks, further underscoring the importance of regulatory literacy and preparedness. 

Overall, while they have their nuances, these shifts can be seen to represent a fundamental change in tone: from caution to promotion, and from restriction to readiness. 

 

From concept to execution: launching custody services

For banks contemplating their future digital asset roadmap, custody offers an approachable, compliant, and relatively low-risk starting point. Unlike trading or decentralized finance (DeFi), custody aligns with banks’ established competencies in audit, risk management, and fiduciary trust. Execution, however, requires clarity of strategy and operational rigor. 

A successful custody rollout typically begins with a strategic assessment of institutional capabilities, client demand and regulatory requirements. Once a business case is established, banks must choose between adopting a direct custody model, appointing a sub-custodian, or entering into partnerships with regulated crypto-native providers.

The technical implementation involves deploying secure wallet infrastructure, defining governance protocols, and establishing robust compliance frameworks. Institutions must ensure role-based access controls, multi-signature authorization, and proof-of-reserves audits to meet regulatory and client expectations. Once established, custody services can serve as a foundation for expanding into adjacent offerings such as stablecoin payments, bitcoin-backed lending, and asset tokenization.

As noted earlier, a compelling argument for custody is that it allows banks to build on what they already do well. Core competencies, including access management, audit readiness and compliance testing, are directly applicable to the digital asset realm. The transition does not necessitate wholesale reinvention. Rather, it requires the thoughtful extension of traditional risk governance to a new asset class. Tools such as multi-party computation (MPC), real-time reporting, and on-chain asset segregation can be integrated with existing security protocols.

 

Strategic timing: Why now

The digital asset market is at an inflection point. With a market capitalization of $3.5 trillion and over one billion expected users by the end of 2025, digital assets are not merely a passing trend, they are a structural transformation.¹⁴

At the same time, early adopters among traditional banks are beginning to shape the competitive terrain. Citi, JPMorgan, and Mastercard have already introduced scalable custody-related services, signaling that the strategic window for those more risk-averse banks is narrowing.

Waiting carries risk. Not only the risk of missing out on new revenue streams from assets under custody, but also the deeper risk of client disintermediation. Once customers build relationships with fintech centralized exchanges and their custodians, recapturing that trust and asset share becomes significantly more difficult.

 

Looking ahead: A platform for growth

Digital asset custody is not just a destination, it is a gateway. Once banks establish custody capabilities, they are well positioned to expand into stablecoins and high-value services including tokenized asset issuance and embedded DeFi solutions. Moreover, custody enables banks to participate in emerging ecosystems that blend traditional finance with blockchain-native models.

Whether through institutional APIs, cross-border stablecoin rails, or integrated tax reporting tools, the possibilities are expansive.

The ability to send low-cost 24/7/365 international payments outside of SWIFT via stablecoins is one of the strongest digital asset use cases.  Additionally, digital asset tax reporting and digital asset portfolio performance can be integrated across various custodians and centralized exchanges providing seamless, real-time tax reporting services.

The message for large and super-regional banks is clear: digital asset custody is not a fringe innovation or a future consideration. It is a present-moment strategic priority. With regulatory constraints loosening, customer demand intensifying and existing infrastructure increasingly digital asset ready, custody presents a rare convergence of opportunity, timing and feasibility. The institutions that act now will not only capture emerging market share, they will shape the digital asset future of banking itself.

This article originally appeared on www.bai.org 

References

¹ https://cryptonews.com/news/crypto-now-used-by-55-million-americans-study-finds/  
² https://www.bakerhill.com/resources/digital-banking-on-the-new-generation/ 
³ https://www.pymnts.com/news/digital-banking/2024/60percent-millennials-primarily-use-mobile-banking-apps/ 
⁴ https://www.pewresearch.org/short-reads/2024/10/24/majority-of-americans-arent-confident-in-the-safety-and-reliability-of-cryptocurrency/ 
⁵ https://www.businesswire.com/news/home/20250402196036/en/Largest-Ever-Study-of-Crypto-Holders-in-the-U.S.-Finds-21-of-Adults-Use-Digital-Assets
⁶ https://www.nydig.com/research/life-insurance-bitcoin-survey
⁷ https://www.investopedia.com/generation-x-all-eyes-on-retirement-5224396
⁸ https://ripple.com/insights/2023-new-value-report-top-5-crypto-trends-in-business-and-beyond/ 
⁹ https://ripple.com/insights/2023-new-value-report-top-5-crypto-trends-in-business-and-beyond/
¹⁰ https://bankingjournal.aba.com/2025/01/sec-repeals-controversial-crypto-accounting-rules-for-banks/
¹¹ https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2025/int1183.pdf
¹² https://www.bitget.com/news/detail/12560604723057
¹³ https://www.esma.europa.eu/esmas-activities/digital-finance-and-innovation/markets-crypto-assets-regulation-mica
¹⁴ https://www.forbes.com/digital-assets/crypto-prices/?sh=4a11b1bf2478