Major Japanese bank to launch cryptocurrency custody business

A major Japanese bank has announced its intention to create a cryptocurrency custody company in response to the global proliferation of cryptocurrencies.

Sumitomo Mitsui Trust Bank, a giant Japanese financial institution, has opted to join the cryptocurrency custody industry. The business partnered with Bitbank, a Tokyo-based cryptocurrency exchange, to develop a digital assets custody company.

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The business, known as Japan Digital Asset Trust, will be owned 15% by Sumitomo Mitsui Trust and 85% by Bitbank and will concentrate on providing custody of cryptocurrencies and non-fungible tokens (NFTs) to institutional clients.

The said project will have an initial capital of 300 million yen ($2.3 million), and it anticipates receiving adequate funds from additional investors to extend its capital base to 10 billion yen ($78 million).

According to local media, the venture’s goal is to grab the local institutional sector, which continues to see the custody problem as a barrier to investing in these new products.

Sumitomo Mitsui Trust believes that investors will be more comfortable owning crypto assets if reputable financial institutions give custody instead of crypto exchanges, which are often not subject to the same scrutiny from established regulatory organisations.

Sumitomo Mitsui Trust and Bitbank will face competition from Nomura and Crypto Garage, a cryptocurrency exchange. The duo plans to offer a digital asset custodian service for institutional investors in Japan.

According to the reports, by the end of 2024, the biggest investment bank in Japan would integrate a variety of digital asset services under a single wholly-owned company with a workforce of around 100.

Crypto initiatives for institutions across the United States

Institutional investors in the United States, such as insurers and pension funds, are already investing in digital assets with the assistance of big asset managers such as Fidelity, which provide digital asset custody services.

Meanwhile, U.S. Bank, the fifth-biggest retail bank in the United States, announced the introduction of cryptocurrency custody services for fund managers in October 2021. With support from sub-custodian NYDIG, the initiative sought to assist investment managers in storing private keys for Bitcoin (BTC) and other cryptocurrencies.

Can institutions take crypto adoption to the next level?

Recent interest in cryptocurrencies has not bypassed the high-net-worth group, and all private banks see considerable outflows of funds into crypto exchanges.

Cryptocurrency is a significant AUM and value drain for private banks. In many instances, this has prompted private banks to quickly develop their crypto capabilities to provide investment services to customers and maintain client value.

In addition, several financial institutions have already acquired indirect exposure to the cryptocurrency market. Investments in mutual funds and exchange-traded funds (ETFs) have become a popular method for organisations to get exposure to a particular asset class without incurring regulatory or operational burdens.

In conclusion, institutions have shown their interest in the asset class by expanding into new crypto-related firms to level the playing field for the future.