KBRA Financial Intelligence

How a New Era of Crypto-Banking Could Emerge in 2025 and Beyond

In the wake of the U.S. November presidential election, the total cryptocurrency market capitalization has soared to over $3.7 trillion, more than doubling since early 2024. The Bloomberg Galaxy Crypto Index (BGCI), which tracks the valuations of 10 leading cryptocurrencies, has risen by over 50% since Election Day. President-elect Trump’s campaign promises to deregulate the digital asset industry have already translated into market optimism. His nominee for Securities and Exchange Commission (SEC) chairman, Paul Atkins—a former SEC commissioner under President George W. Bush and a notable digital asset advocate—signals a shift in regulatory posture. Atkins is expected to replace outgoing Chair Gary Gensler, who oversaw an aggressive enforcement agenda targeting unregistered securities in the crypto space.

Prior to the presidential election in November, KFI noted that the heads of both the FDIC and Office of the Comptroller of the Currency (OCC) were in different states of limbo and would be replaced in the next president’s administration. Though Trump has not yet named his preferred appointees for these offices, each agency plays a key role in oversight and regulation of the American banking industry, alongside the Federal Reserve. The terms of Fed Chairman Jerome Powell and Vice Chair for Supervision Michael Barr are set to expire in May and July 2026, respectively, which will give Trump even more leeway to shape the future of banking regulation in the U.S. during his second term. A regulatory environment with officials that are inclined to be more permissive toward digital assets, which have thus far been met with ambivalence from lawmakers and government agencies, could spur a large cohort of U.S. banks to begin engaging more directly in crypto markets services.

Spot Bitcoin ETFs Blueprint Path to Institutional Adoption

Institutional engagement with digital assets has gained traction, exemplified by the success of spot Bitcoin exchange-traded funds (ETFs) launched in 2024. BTC is the largest cryptocurrency, constituting more than one-half of the total cryptocurrency market capitalization.

BlackRock’s iShares Bitcoin Trust (IBIT) is now the 35th largest U.S. ETF in a universe of over 3,500 funds. IBIT became the fastest ever to reach $50 billion in assets under management (AUM) this month, scorching across that threshold just 227 trading days from its launch last January. The previous recordholder, iShares Core MSCI Emerging Markets ETF (IEMG), took 1,323 days. IBIT’s authorized participants, institutions with the right to create and redeem shares, include the securities and capital markets subsidiaries of several major U.S. banks such as Bank of America Corp. (KFI Score: B), JPMorgan Chase & Co (KFI Score: B+), BMO Financial Corp. (KFI Score: B), and The Goldman Sachs Group (KFI Score: B+).

The significance of these breakout products has been the fact that they are spot-backed funds, which means that the fund sponsors buy digital assets in the market and hold them on behalf of investors. This stands in contrast to futures-backed crypto ETFs, which launched prior to 2024, but saw just a fraction of the investor interest that the spot-backed funds have received. All told, the BTC owned by 11 U.S.-traded spot BTC ETFs is worth roughly $110 billion and represents nearly 6% of the supply currently in circulation.

The Regulatory Barriers for Banks

Based on the rapid pace of inflows, demand for digital assets like Bitcoin among both retail and institutional investors appears to have been pent up by a lack of products that provided exposure to BTC without the risks and technological challenges associated with managing the custody of these assets. The regulatory green light from the SEC was further incentive for investors and advisers that might have usually steered clear of crypto exposure to reconsider.

As more banks feel comfortable with applicable regulations, as well as their own implementation of digital asset infrastructure, it is possible that another phase of adoption could occur among more traditional financial institutions. Thus far, banks have taken a backseat to nonbank financial institutions (NBFI) when it comes to providing products and services for crypto assets. Crypto exchange Coinbase is currently the leading institution for digital asset custody in the U.S. and the custodian for the majority of the aforementioned spot-backed BTC ETFs.

The stringent and often indeterminate U.S. regulatory framework has likely prohibited more reliable banking institutions from engaging with cryptocurrency markets directly. Last week, at a Reuters conference, Goldman Sachs CEO David Solomon noted that despite the attention Bitcoin is attracting, the bank’s ability to more directly engage in crypto markets is still limited due to current regulations. In response to a question regarding Goldman potentially making markets in Bitcoin, Solomon responded: “If the regulatory structure changes, we would evaluate that, but at the moment we're not permitted to.” In a December 7 note to clients, Goldman highlighted a “focus on crypto” as a theme “resonating with global clients” and flagged that several of the bank’s crypto capabilities are already available to professional investors through their trading desk.

Though Trump was a more vocal crypto advocate in 2024’s election cycle, regulators had already taken several steps in a pro-crypto direction during his first stint in the White House. These steps were primarily manifested through the same banking regulatory agencies that are set to be staffed with digital asset advocates in Trump’s second term. For example, the OCC solidified national banks’ and federal savings associations’ legal right to take custody of cryptocurrency assets in July 2020, affirming guidance related to the escrow of electronic encryption keys and digital signatures that had already been in place since 1998. These keys are used to initiate transactions on a blockchain network like Bitcoin and create signatures that validate ownership of the keys. As such, the OCC ruled that banks could provide “cryptocurrency custody services on behalf of customers, including by holding the unique cryptographic keys associated with cryptocurrency.” This order was issued under Acting Comptroller Brian P. Brooks, who had served as Chief Legal Officer of Coinbase prior to being appointed to office by President Trump.

Though the OCC has deemed it legal, taking custody of digital assets on behalf of their clients has remained difficult for banks due to various regulations, particularly publicly traded banks that adhere to SEC accounting guidelines. The commission’s Staff Accounting Bulletin (SAB) no. 121, for instance, requires firms in custody of a customer’s cryptocurrency to record them as a liability on their own balance sheet—an unorthodox accounting directive that has major capital implications for banks trying to work with crypto clients. While testifying before the Senate Banking Committee after SAB 121 went into effect in 2022, Fed Chair Powell stated that custody assets held by banks “have always been” recorded off balance sheet by banks, but this stance is now in conflict with the SEC’s specific guidance for crypto-assets held in custody.

A consortium of banking industry associations, including the American Bankers Association and Bank Policy Institute, authored a joint letter addressed to SEC Chair Gensler earlier this year, confirming that the directive “has curbed the ability of the Associations’ members to develop and bring to market at scale certain digital asset products and services” and advocating for modification. One of the SEC’s five commissioners, Mark Uyeda, has recently advocated for the withdrawal of SAB 121, positing that the SEC’s accounting framework for custodied digital assets should be reconsidered.

This issue has become so contentious that Congress attempted to revoke SAB 121 earlier this year. Because the SEC issued the rule without consulting Congress, lawmakers initiated an effort to overturn the directive via the Congressional Review Act (CRA). Though the resolution to repeal the directive successfully passed both the House of Representatives and Senate with bipartisan majorities, it was ultimately vetoed by President Joe Biden last June.

Several exemptions to the rule have been issued by the SEC, with one of those going to The Bank of New York Mellon (KFI Score: B). BNY Mellon launched its crypto custody platform in 2022 and stands out among several other large custodian banks like State Street Corp. (KFI Score: B+), Citigroup, Inc. (KFI Score: B+), and U.S. Bancorp (KFI Score: B), who have solicited partners to develop similar digital asset platforms. Still, another effort to fully repeal SAB 121 could go ahead in the next congressional session with greater success. In addition to Trump taking office, Congress likely became significantly more pro-crypto as a result of big spending by the digital assets industry throughout this past election cycle. Crypto super PAC Fairshake spent $139 million on congressional elections, backing winning candidates in 53 of 58 races. Fairshake now estimates that about 300 of the 535 members of the House and Senate (a majority of roughly 56%) will now be on crypto's side going forward.

KFI will continue to cover developments in crypto-banking as a new digital asset regulatory regime takes shape in 2025. To access our full library of data, request a demo with KFI.