Leading American financial services provider State Street is teaming up with Swiss crypto company Taurus to roll out new digital asset services. The collaboration aims to cater to the rising demand among institutional investors for opportunities in the digital asset space, including the ability to transform physical assets into tradeable digital tokens.
Institutional interest in cryptocurrencies has increased as they become more prevalent in the financial system, especially through regulated products such as exchange-traded funds (ETFs) and futures. With these new asset classes, many of these investors are trying to find strategies to diversify their portfolios and protect themselves from inflation.
Through the collaboration, State Street, which presently provides accounting and cryptocurrency fund management services, will broaden its range of services by taking custody of customers’ cryptocurrency assets and helping them to tokenize assets such as stocks and funds.
Tokenization is the process of transferring ownership rights of conventional assets into digital tokens that are stored on a blockchain. The openness and security of this user-managed decentralized technology are highly commended because it can provide more efficient and straightforward trading of these assets. For instance, BlackRock has launched a tokenized fund on the Ether blockchain, allowing investors to earn yields in U.S. dollars.
State Street’s head product officer and chief of Digital Asset Solutions, Donna Milrod, stated that the goal of the company’s new offering is to assist asset-management customers who are considering tokenizing their investments. She mentioned that the new service would be launched soon, but she did not say when it would be accessible.
Taurus and State Street’s collaboration also tackles the issue of reliable custodians for digital assets. There’s a growing inclination among organizations exploring the crypto field to protect these digital assets through established banks instead of depending on wallet or exchange providers that might have laxer security controls.
Institutional interest in cryptocurrency has increased dramatically in the wake of this year’s introduction of multiple spot Ether and Bitcoin ETFs. Prominent financial institutions, including Goldman Sachs and Morgan Stanley, made approximately $600 million in spot Bitcoin exchange-traded funds (ETF) investments during the second quarter, following the lead set by financial advisors, hedge funds and pension funds.
In June, a division of the bank, State Street Global Advisors (SSGA), submitted an application to the U.S. Securities and Exchange Commission (SEC) to register a Galaxy Asset Management (GAM) cryptocurrency fund. GAM would offer exposure to cryptocurrency businesses and exchange-traded funds, while SSGA provides administrative support.
However, plans to provide cryptocurrency custody services, where the bank would securely store clients’ crypto assets, are contingent on the SEC amending its 2022 accounting rules. The current guidelines make it prohibitively expensive for publicly traded banks to hold crypto assets for their customers.
As more players such as State Street join the likes of Coinbase Global Inc. (NASDAQ: COIN) in expanding the range of services that they offer, more retail and institutional clients are likely to be brought into the fold, and the penetration of the industry will grow.
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