Some of the largest custodial banks are interested in crypto custody but are hindered by the SEC rule SAB 121, which establishes accounting standards
- Coinbase, BitGo have been among the dominant service providers — SEC rule seen making it impractical for banks to do custody
Context & Ripple Effects
Crypto custody has been built largely by specialist providers since Coinbase introduced an institutional custody service in 2018, later obtaining a New York trust-company approval for that offering. The current barrier matters because established custodial banks are interested in entering a market that has developed outside their core infrastructure.
The issue also sits alongside concern that Coinbase's custody, trading and financing roles for many bitcoin ETF issuers could create concentrated institutional dependence. SAB 121 keeps that competitive structure intact by making bank-led custody impractical, according to the report.
First-order effects
- Large custodial banks interested in crypto custody remain constrained from launching or scaling those services while SAB 121 applies.
- Existing specialists, including Coinbase and BitGo, retain an advantage in serving institutions; Coinbase's early institutional custody launch helped establish that position.
Second-order effects
- Institutional clients seeking bank-grade custody have fewer large-bank options, leaving specialist providers with more leverage over service relationships.
- Would-be bank entrants must either defer custody plans or seek models that avoid the accounting constraint, while incumbent providers face less immediate pressure from banks' distribution networks.
Third-order effects
- If the constraint persists, crypto custody may remain structurally separated from traditional custody: regulated banks hold back while specialist platforms become core institutional infrastructure.
- That separation can amplify concentration risk as products such as ETFs depend on a limited set of providers; whether it narrows depends on future accounting or regulatory changes.
The trend: Crypto’s institutionalization is advancing through specialist infrastructure, but accounting rules can still prevent traditional banks from becoming full-service providers.