Dominance Race in Crypto Custody Services Heats Up on Wall Street

The race for leadership in crypto custody services is accelerating on Wall Street, with financial giants rushing to offer services that were once off-limits. The latest to make their move are State Street and Citi, two of the world’s largest custodian banks.

State Street, managing $46.6 trillion in assets, and Citi, with $25 trillion in custody, have both announced plans to launch crypto custody services.

This move signifies a major shift in the industry, as years of regulatory barriers had kept major financial institutions on the sidelines.

Citi and State Street’s Crypto Custody Plans

According to a report by The Information, State Street plans to launch its crypto custody services by 2026.

The firm established a dedicated digital assets division in 2021 and briefly partnered with UK-based Copper for custody technology. However, regulatory uncertainty forced the firm to shelve its plans in 2023.

Meanwhile, Citi has been exploring blockchain-based initiatives. The bank previously collaborated with Singapore-based BondbloX for tokenized bond custody and worked with Metaco on digital asset custody; Metaco was later acquired by Ripple.

Citi’s crypto strategy had been quieter compared to its peers, but recent developments suggest the bank is now focused on the sector with renewed innovation.

The Repeal of SAB 121 Opens the Door for Banks

Wall Street’s shift toward crypto can largely be attributed to the recent repeal of SAB 121, a SEC rule that restricted banks from offering crypto custody services.

Introduced in 2022, SAB 121 effectively prevented traditional banks from entering the crypto custody market, while granting exceptions to select firms like BNY Mellon. Critics argued the rule stifled innovation and gave regulators excessive control over the market.

However, with the Trump administration’s repeal of SAB 121, banks are now free to participate in crypto custody, paving the way for giants like Citi and State Street to enter the sector.

A Pro-Crypto Shift on Wall Street

For years, banks had approached crypto cautiously, wary of regulatory scrutiny and reputational risks. But with the lifting of restrictions and growing institutional demand for secure digital asset custody, the landscape has changed.

With a crypto-friendly president in office and regulatory barriers falling, Wall Street’s biggest players are no longer sitting on the sidelines—they are moving in.

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SAB 121: A Controversial Regulation for the Crypto Industry

SAB 121 was issued by the SEC in March 2022 and required financial institutions to record digital assets held on behalf of customers as liabilities. This regulation was heavily criticized by the industry, especially for making it difficult to account for crypto assets and preventing banks from providing cryptocurrency custody services.

SEC member and crypto task force leader Hester Peirce said in a statement after the decision:

Goodbye SAB 121! You were no fun.

New Era in Crypto Accounting

A new Staff Accounting Bulletin issued on January 23, 2025 officially revoked the guidance of SAB 121. Following the decision, former Binance CEO CZ said, “The U.S. strategic reserve of Bitcoin has been largely vindicated,” emphasizing the positive effects of the repeal on the industry.

With the repeal, banks will now be able to store crypto assets directly on behalf of their customers and offer these services on a wider scale. Michael Saylor, one of the leading names, interpreted this development as “Banks are allowed to store Bitcoin”.

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Political Reactions and Support

The decision was welcomed by many crypto-friendly politicians:

• Senator Cynthia Lummis celebrated the repeal of SAB 121 by the SEC, saying, “This regulation was devastating to the banking industry and stopped American innovation. I am very happy that it has been repealed,” she said.
• Representative French Hill stated that SAB 121 was a non-standard practice in financial services and that the repeal was the right step.

A New Era at the SEC Under the Trump Administration

The repeal of SAB 121 is considered to be the first major step taken by the SEC under the Donald Trump administration regarding digital assets. The bill to repeal SAB 121 received bipartisan support in Congress in 2024 but was vetoed by then-President Joe Biden. The Trump administration quickly implemented this cancellation, paving the way for the sector.

A Big Step for American Innovation

This decision is considered part of the US efforts to re-establish its leadership in the crypto economy. The repeal of SAB 121 allows banks to expand their crypto asset custody services, further cementing the place of digital assets in the financial system. The industry sees this development as an important opportunity for innovation and growth.

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A Critical Opportunity for ETH!

Markus Thielen, the Head of Research at 10x Research, stated that this development could enable Ethereum’s decentralized finance (DeFi) services to expand, strengthening the network’s position as the backbone of the ecosystem.

On January 23, the SEC repealed the accounting rule known as SAB 121. This rule had required financial companies to record the crypto assets they held as liabilities on their balance sheets. The rule had faced significant backlash from the crypto industry since 2022.

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Thielen noted that while he is not typically an advocate for Ethereum (ETH), the current price chart presents a “convincingly low-risk, high-reward opportunity.”

Ethereum’s Technical Outlook

Currently, ETH/USDT is trading at $3,325. While it climbed to $3,707 on January 7, it failed to maintain its position above $3,500.

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According to Thielen, Ethereum (ETH) could break its existing triangle pattern, and setting a stop-loss near $3,186 could be a prudent approach.

A New Target for ETH: $7,000!

Crypto analyst Titan of Crypto argues that Ethereum (ETH) reaching $7,000 is inevitable. Another analyst, Crypto Caesar, commented, “ETH is about to explode.”

Additionally, Ethereum (ETH) whales have reportedly accumulated $1 billion worth of ETH, further reinforcing investors’ expectations that $5,000 could be tested soon.

Ethereum ETFs and the Trump Family Factor

Joseph Lubin, Ethereum’s co-founder and the CEO of Consensys, highlighted two key factors likely to drive ETH prices in the near future:

1. Ethereum ETFs: ETF issuers are waiting for regulatory approval for funds that allow ETH staking.
2. Trump Family and Ethereum: Lubin suggested that the Trump family is likely to establish an Ethereum-based business.

The SEC’s repeal of SAB 121 could lead to greater adoption of Ethereum by institutional investors. While technical analysis suggests setting a stop-loss at $3,186, most analysts believe that ETH holds significant potential for upward momentum in the coming months.

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ABA’s Appeal to President Biden

The ABA said in a May 31 letter to Biden, just before he said he would veto the Congressional resolution aimed at eradicating the U.S. Securities and Exchange Commission (SEC) SAB 121 guidelines, “Precluding regulated banking organizations from effectively providing digital asset safeguarding services at scale harms investors, customers, and ultimately the financial system.”

Biden chose to utilize his presidential veto authority, therefore preventing the SAB 121 guideline from being reversed, even though both houses of Congress—the House of Representatives and the Senate—voted in support of repeal.

The advocacy organization clarified that SAB 121 is a significant departure from the general treatment of custodial assets and might make it more difficult for the sector to maintain digital assets safe for consumers.

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People in the crypto space might find the ABA’s pro-crypto stance unexpected. The ABA clarified, “The SAB 121 represents a significant departure from longstanding accounting treatment for custodial assets and threatens the industry’s ability to provide its customers with safe and sound custody of digital assets.”

“Limiting banks’ ability to offer these services leaves customers with few well-regulated, trusted options for safeguarding their digital asset portfolios and finally exposes them to increased risk,” it said.

For some in the crypto space, the ABA’s pro-crypto message may be shocking, particularly given that only last year claims of the association supporting Senator Elizabeth Warren, renowned for her mistrust of crypto, in writing anti-crypto legislation surfaced.

Roger Marshall stated in December 2023, on a video that leaked on X (previously Twitter), that he and Elizabeth Warren visited the ABA for help in writing the Digital Asset Anti-Money Laundering Act.

“The first thing we did was go to the American Bankers Association and say, ‘Help us craft this,'” Marshall said.

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On May 31, Biden wrote a letter to the President of the ABA, a few hours before he vetoed his decision to remove the Congress’s SAB 121 instructions. “To prevent the ability of regulated banking organizations to effectively provide digital assets storage services, it damages investors, customers and ultimately the financial system, ABa said ABA called Biden to give up the veto in his letter.

Both the House of Representatives and the Senate have voted for the abolition of SAB 121 instructions, but prevented the cancellation of the instructions using the Biden Presidential Veto authority.

ABA announced that SAB 121 is a major change in how storage assets are handled, and that it can make it difficult to keep the sector’s digital assets safe. “Sab 121 represents a significant deviation from the long -standing accounting practices for storage assets, and threatens the ability of the industry to ensure the safe and solid storage of digital assets to its customers,” the industry said.

ABA said that the limitation of the ability of banks to provide these services will make it difficult for customers to have well -arranged, reliable options to secure their digital asset portfolios, and ultimately exposure them to increasing risk.

For some people in the crypto industry, ABA’s Pro-Cripto description may be surprising. Last year, the group’s reports that the group helped Senator Elizabeth Warren, who was skeptical against the crypto, had emerged in the draft of the Anti-Cripto law. In December 2023, Cointelegraph made news about a video that Roger Marshall admitted to ABA that he received help from ABA while preparing the law of Digital Being with Warren with Warren. Marshall, “the first thing we do, the American Union of Banners went to say,” Help us, “he said.

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Biden’s Veto Threat

Although the Congress had approved it, President Biden had earlier said that he would veto the resolution, which was to be aimed at overturning the SEC’s policy. The White House said that it is “firmly against” the actions of those who are trying to disrupt the SEC measures, which were designed to protect investors in crypto-asset markets while at the same time safeguarding the whole financial system. This position emphasizes the government’s will to have strict regulatory frameworks in the financial sector.

Crypto Bill Receives Wide Approval

Perianne Boring, the founder and CEO of the blockchain trade association Digital Chamber, stressed that it was necessary for Congress to pass H.J. Res. 109 with strong support. Boring pointed out that SAB 121 was so controversial that it made 21 Democratic Senators support the bill, among them Senate Majority Leader Chuck Schumer. This bipartisan support means that the Biden administration may have to change its cryptographic regulations.

The White House’s Dilemma

The Biden administration is in a dilemma. The vetoing of the resolution could result in a civil war within the Democratic Party, especially with the next U.S. elections approaching. Patrick Kirby, the policy lead for the Crypto Council for Innovation, said that the President has ten days (except Sundays) to sign a resolution and make it law without his signature or veto. Another option is a “pocket veto,” in which the president can let the bill die if Congress is not in session.

External Pressures and Political Maneuvers

The Biden administration is not only faced with political pressure but also social pressure. The American Bankers Association has asked President Biden to sign the resolution so that it can be a law and protect American consumers, as well as support, through this, the banking sector’s interest in offering custody services for cryptocurrencies. Furthermore, former President and presidential candidate Donald Trump’s pro-crypto stance is a political strategy in itself. The change of Trump from his anti-Bitcoin position to his support for crypto can affect the voter mood before the November 2024 elections.

Potential SEC Reconsideration

The solution to the conflict is possibly in the SEC itself. Commissioner Hester Pierce was a part of the Blockchain Summit, and she said that SAB 121 has been criticized heavily and may even make industry participation decrease. If the SEC annuls SAB 121, President Biden will not have to make a tough veto decision.

Awaiting the Next Move

The SEC’s decision on SAB 121 is a crucial point in the Biden administration’s choice of action. The controversy shows the never-ending fight between regulations and innovations in a very fast-growing cryptosphere. Being broadly supported by the Congress and being of great public and industry interest, the next steps taken by both the White House and SEC will be observed very closely by all concerned.

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The Senate voted 60-38 to overturn the rule, known as Staff Accounting Bulletin (SAB) 121, which was issued by the SEC in 2022. The rule had been met with strong opposition from the crypto industry, which argued that it would stifle innovation and make it more difficult for institutional investors to access cryptocurrencies.

SAB 121 Provisions

Under SAB 121, crypto custodians would have been required to treat cryptocurrencies as liabilities on their balance sheets. This would have made it more difficult for banks to offer crypto custody services, as it would have increased their capital requirements.

The vote to overturn SAB 121 was bipartisan, with both Democrats and Republicans voting against the rule. This suggests that there is strong opposition to the SEC’s approach to crypto regulation in both chambers of Congress.

The Senate’s vote is expected to be sent to President Joe Biden, who has previously indicated that he is supportive of the crypto industry. It is likely that Biden will veto the rule, which would mean that it would not go into effect.

Implications for Crypto Industry

The Senate’s vote is a major victory for the crypto industry and is likely to be seen as a sign that Congress is supportive of innovation in the space. It is also a blow to the SEC, which has been criticized for its heavy-handed approach to crypto regulation.

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