Which Cryptocurrencies Are Banks Actually Buying?

Traditional banking institutions are increasingly engaging with the cryptocurrency ecosystem. While the public often wonders which specific cryptocurrencies banks are “buying,” their involvement is far more complex than simple direct acquisition. Banks interact with digital assets and blockchain technology in varied ways, reflecting an evolving landscape driven by innovation and regulatory shifts. This engagement spans from limited direct holdings to significant investments in technological infrastructure and client-focused services.

Banks and Digital Asset Holdings

Traditional banks maintain a cautious approach to directly holding volatile cryptocurrencies, such as Bitcoin or Ethereum, on their balance sheets. This stems from stringent regulatory environments and risk management policies designed to protect customer deposits and financial stability. Global standards like the Basel Committee rules and domestic guidance, such as the SEC’s Staff Accounting Bulletin 121, impose substantial capital requirements and accounting treatments for crypto exposures, often requiring a dollar-for-dollar capital backing for certain holdings. This regulatory posture limits banks’ appetite for speculative crypto investments.

Banks actively utilize stablecoins, digital assets designed to maintain a stable value, typically pegged to a fiat currency like the U.S. dollar. JPMorgan Chase’s JPM Coin exemplifies this, functioning as a digital representation of fiat currency held within institutional accounts. JPM Coin facilitates instantaneous cross-border payments and interbank settlements for wholesale clients, operating 24/7 and improving efficiency over traditional wire transfers. Other major financial institutions, including Bank of America, have expressed interest in issuing their own stablecoins, recognizing their potential to modernize payment systems and reduce transaction costs.

Beyond stablecoins, banks are increasingly involved in the tokenization of traditional assets. This process converts real-world assets, such as real estate, bonds, and equities, into digital tokens recorded on a blockchain. Tokenization enhances liquidity for illiquid assets, enables fractional ownership, and can lower transaction costs by streamlining processes. Banks are exploring platforms for tokenized bonds and real estate, aiming to democratize access to these markets and create new revenue streams by making investments more accessible and efficient.

Banks and Blockchain Technology Adoption

Beyond direct digital asset holdings, banks are integrating blockchain, or distributed ledger technology (DLT), into their internal operations and interbank processes. This adoption focuses on leveraging DLT’s efficiencies, security, and transparency, independent of specific cryptocurrencies.

A primary area of focus is wholesale payments and settlements. Banks utilize DLT to enhance the speed, security, and efficiency of cross-border transactions, interbank settlements, and repurchase agreements. JPMorgan’s Onyx platform, for example, is a permissioned blockchain designed for wholesale purposes, facilitating repo operations settlements and supporting multi-currency asset clearing through its components like Liink and Coin Systems. This creates a more efficient system compared to traditional methods.

Blockchain technology is also applied to streamline trade finance operations. The technology can reduce extensive paperwork, enhance transparency, and improve the efficiency of complex trade transactions by providing an immutable and verifiable record of each step. This digitalization helps mitigate risks and accelerates the trade process.

Banks are building blockchain-based infrastructure for asset management and custody, even for traditional assets. This involves using DLT to manage and record ownership of securities, real estate, and other assets, providing a robust and transparent system for tracking and verifying asset provenance and transfers. This modernizes financial markets, preparing them for a future where digital assets play a central role.

Banks as Crypto Custodians and Service Providers

Banks are expanding their offerings to provide services for clients seeking exposure to digital assets, positioning themselves as trusted intermediaries. These services cater primarily to institutional investors, hedge funds, and high-net-worth individuals. This client-focused approach allows banks to participate in the digital asset market without holding cryptocurrencies on their own balance sheets.

A prominent service is cryptocurrency custody, where banks provide secure storage and management of digital assets for their clients. This involves robust security measures, including advanced encryption and offline storage solutions, to protect cryptographic keys and client assets from cyber threats. Regulatory bodies, including the Federal Reserve, FDIC, and OCC, have clarified that banks are permitted to hold crypto assets for customers in both fiduciary and non-fiduciary capacities, provided they implement strong risk management frameworks and adhere to federal and state laws. While the SEC’s Staff Accounting Bulletin 121 generally requires banks to account for custodied crypto as both an asset and a liability, discussions continue regarding potential exceptions for assets held in a bankruptcy-remote manner.

Banks also offer prime brokerage-like services for digital assets, integrating trading, lending, and capital introduction for institutional crypto clients. This provides a familiar institutional framework for navigating digital asset markets, addressing needs such as liquidity, execution, and risk management. Facilitating client access to regulated crypto investment products, such as exchange-traded funds (ETFs), is another expanding area. Instead of direct crypto holdings, banks enable clients to invest in these regulated vehicles, offering a traditional pathway into the digital asset market.

Banks are exploring ways to facilitate payments in cryptocurrencies for their clients, acting as intermediaries to convert fiat to crypto or vice versa for transactions. Recent regulatory shifts, including the withdrawal of previous restrictive statements by U.S. banking regulators, have granted banks greater flexibility to engage with digital asset activities, provided they maintain proper risk management practices. This evolving regulatory clarity allows banks to broaden their client-facing crypto services, ensuring these activities are conducted in a safe and sound manner.