Dive Brief:

• U.S. Bank has launched cryptocurrency custody services, the bank announced Tuesday. However, at this point, access is limited to institutional investment managers with funds in the U.S. and the Cayman Islands.
• Services are limited, too, to select currencies: Bitcoin, Bitcoin cash and Litecoin. Support for other coins, such as Ethereum, is expected eventually, Gunjan Kedia, vice chair of U.S. Bank’s wealth management and investment services division, told CNBC.
• The offering follows a flurry of moves into the crypto space this year by larger banks — particularly around when the value of Bitcoin peaked in mid-April. Cryptocurrency’s flagship coin jumped more than 15-fold from $4,107 at the start of the COVID-19 pandemic to $64,863 on April 14 before losing nearly half its value by late May. Bitcoin closed above $50,000 on Tuesday for only the third time then, according to Yahoo Finance.

Dive Insight:

U.S. Bank’s offering, through a partnership with subcustodian NYDIG, is meant to help investment managers store private crypto keys for their clients — a service the fund managers could offer on their own but find the backing of a brand like U.S. Bank bolsters clients’ trust. NYDIG, for its part, has struck similar crypto subcustodian deals this year with Fiserv and FIS.

Apart from the rise in Bitcoin’s value, another motivator in the proliferation of crypto offerings among banks has been a shift in the regulatory environment. The Office of the Comptroller of the Currency (OCC), under Trump appointee Brian Brooks, issued guidance regarding banks' use of stablecoins and blockchains, as well as an interpretive letter clarifying that national banks are allowed to provide cryptocurrency custody services. (Acting Comptroller Michael Hsu has said he would review those moves, as well as the OCC’s sign-off on charters for crypto firms.)

Kedia told CNBC that U.S. Bank’s clients are "getting very serious about the potential of cryptocurrency as a diversified asset class." 

"I don’t believe there’s a single asset manager that isn’t thinking about it right now," she said.

With its move to acquire MUFG Union Bank last month, U.S. Bank cemented itself as the nation’s fifth-largest consumer bank — though each of the four banks above it hold at least three times as much in assets.

However, each of those four has cemented its crypto offerings — or at least a plan — over the past few months, as have investment behemoths Goldman Sachs and Morgan Stanley, and custody giants BNY Mellon and State Street.

BNY Mellon in February said it would develop a client-facing prototype this year for a multi-asset digital custody and administration platform. Goldman relaunched its crypto trading desk the following month. Citi and State Street debuted digital-assets units in June. Wells Fargo said it planned to launch a crypto investment platform around the same time. And Bank of America created a team to research cryptocurrencies and digital currency-related technology.

Bank of America and JPMorgan

That team published its first research coverage Monday, concluding that crypto comprises a $2 trillion market with 200 million users — a sector Bank of America called "too large to ignore."

"We believe crypto-based digital assets could form an entirely new asset class," the analysts said, adding that venture capital investments in digital assets and blockchain technology surpassed $17 billion in the first half of 2021, according to CoinDesk. 

That’s more than triple the $5.5 billion from 2020’s comparable six-month span.

U.S. Bank sees the opportunity, too. "What we were hearing across the board, is that while every currency might not survive — there may not be room for thousands of coins — there’s something about the potential of this asset class and the underlying technology that would be prudent for us to stand up support for it," Kedia told CNBC, adding that she expects demand to rise if the Securities and Exchange Commission (SEC) approves a Bitcoin exchange-traded fund.

Not every banking executive is all-in. While JPMorgan Chase extended banking services to Bitcoin exchanges Coinbase and Gemini as early as April 2020, its CEO, Jamie Dimon, in an interview with Axios broadcast Sunday on HBO, called the asset class "a little bit of fool’s gold."

"It’s got no intrinsic value. And regulators are going to regulate the hell out of it," he said. "I’ve always believed it’ll be made illegal someplace, like China made it illegal."

Dimon’s comments hark back to 2017, when Dimon called Bitcoin "a fraud" and said he would fire "in a second" anyone at JPMorgan found to be trading in the digital currency.

"It's not a real thing, eventually it will be closed," Dimon said during a conference that year. "You can't have a business where people can invent a currency out of thin air and think that people who are buying it are really smart."

Like he did in 2017, Dimon on Sunday referenced cryptocurrency as a potential means for illegal activity.

"You can call it a security or an asset or something like that, but if people are using it for tax avoidance and sex trafficking and ransomware, it’s going to be regulated, whether you like it or not," he said.