Does Bank of America’s Crypto Custody Show Irrelevance of Bitcoin ETFs?

This week, $312 billion Bank of America (BoA) filed a patent to offer crypto custody, targeting large-scale institutional investors and retail traders.

Some experts have said that the efforts of major financial institutions to create institutional products around cryptocurrencies will bolster the adoption of crypto in US markets, which will naturally lead to other publicly tradable instruments such as Bitcoin exchange-traded funds (ETFs).

Bitcoin ETFs Not Necessary?

The patent of BoA, filed with the US Patent and Trademark Office, described a vault system with which institutions can safely store digital assets like Bitcoin. It read:

“The processor is also able to deposit the quantity of cryptocurrency into a vault connected to a network and determine a total quantity of cryptocurrency deposited into the vault. The processor may also, in response to determining the total quantity of cryptocurrency deposited into the vault exceeds a threshold, facilitate the disconnection of the vault from the network.”

In essence, the system of BoA is similar to the services offered by Xapo, a Hong Kong-based Bitcoin vault company that has been storing over $10 billion in Bitcoin on behalf of institutions since early 2014.

With such a system in place, BoA will be able to provide a platform for its clients and large institutions in the finance sector to allocate large sums of money into the crypto sector without concerns regarding security and regulation.

BoA stated that the primary purpose of its crypto vault system is to allow enterprises to safely store large amounts of digital assets while being able to conduct transactions on a daily basis.

“Enterprises may handle a large number of financial transactions on a daily basis. As technology advances, financial transactions involving cryptocurrency have become more common. For some enterprises, it may be desirable to securely store cryptocurrency,” BoA said.

In an interview with Forbes, Jonathan Hamel of Acadamie Bitcoin in Montreal explained that the introduction of institutional products around crypto like the BoA custody solution and Bakkt, a joint venture created by Microsoft, Starbucks, and the New York Stock Exchange, will significantly improve the physical over-the-counter (OTC) and institutional infrastructure.

In the near future, Hamel said that institutions will be able to comfortably invest through existing custodian solutions that are sufficient to bring in billions of dollars in new capital into the space.

As the OTC and institutional market improves, Hamel noted that ETFs and other publicly tradable instruments will inevitably arrive in US markets, emphasizing that investors do not have to be concerned about the approval of ETFs just yet.

“I don’t think (the rejections) are that important. The ‘physical’ over-the-counter/institutional bitcoin infrastructure is only getting started. The development of financial vehicles backed by bitcoin is inevitable. It’s not if, it’s when,” Hamel stated.

Institutional Market is Improving

Currently, the vast majority of investors are highly anticipating the debut of the first Bitcoin ETF because most believe that an ETF would bring in substantial capital into the asset class.

But, officials at the US Securities and Exchange Commission (SEC) have made it clear that there exists certain requirements ETF operators will have to meet and the first Bitcoin ETF is unlikely to emerge in US markets until early 2019.

In the meantime, as Hamel said, investors are still able to invest in the market through custodian solutions and the institutional market improves, more institutions will be willing to consider cryptocurrencies as a legitimate market to invest in as an alternative.

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