Egggg yolk, what is going on with those who
tune in daily, the Chico army, and of course
any newbie aka a viewer of the tube.
My name is Tyler, the host of the channel,
that really loves the birth of a new video
meme on the internet…...No wayayayayay,
he got
triple H shoes On, ON, ON ON.
It’s time for Chico Crypto!
So, I gotta cover this news that ripped through
the crypto industry, late in the day on Wednesday….it
was announced that National banks in the US,
could now offer custody services for crypto
assets.
As we can see from Coindek’s article on
the news, it was the regulator, the office
of the comptroller of the currency, who gave
this the greenlight.
Which, I knew something like this was coming...I
have been covering Brian Brooks, Coinbase’s
former Chief Legal Officer, first joining
the office in March of this year, officially
leaving the base and joining the government,
and then by May in just a couple of months,
he became the acting comptroller of the currency,
our nation's top banking regulator position.
So, a move like this makes sense, although
I personally thought it would be the other
way around.
I thought crypto companies would become the
banks, and get licenses to operate like one...as
Coinbase was already trying to get a national
banking license in 2018.
Not banks would become the crypto companies….
So is this good, is the big question???
That national banks can custody our crypto
assets for us...well, let’s get the actual
document from the OCC, and dissect it, to
get a Chico interpretation of what was said.
It states “we conclude a national bank may
provide these cryptocurrency custody services
on behalf of customers, including by holding
the unique cryptographic keys associated with
cryptocurrency.
This letter also reaffirms the OCC’s position
that national banks may provide permissible
banking services to any lawful business they
choose, including cryptocurrency businesses,
so long as they effectively manage the risks
and comply with applicable law.”
So right away, we get what this is about in
the short term.
It was all about finalizing the red tape for
getting crypto companies, like Coinbase, the
ability to be served by our national banks.
It means that when you have your assets on
Coinbase, a federally charted bank in the
US may be the custodian of those funds.
These guys are allowed, the national banks
that were active as of 6/30/2020 which includes
all the big banks, the household names...from
every state.
JP Morgan chase providing banking services
to coinbase?
Well that is what this new ruling by the OCC
says, can & has actually already happened.
In May of this year, it was announced that
JP Morgan was opening accounts for crypto
exchanges, and Coinbase and Gemini were the
first two.
What were the services?
From the Coindesk article “The Wall St.
Journal sources said JPMorgan is now providing
Coinbase and Gemini’s U.S. users with deposits
and withdrawals via wire transfer and automated
Clearing House (ACH) transactions.
It’s also helping the exchanges with cash
management services.
So they got OK’d for cash services for the
base back in May, but now they are OK’d
to actually hold the crypto, for it’s customers...which
in JP Morgan’s case, right now, is Coinbase.
So are you comfortable with JP Morgan, holding
your private keys?
If you use Coinbase, that is a very likely
possibility with this new ruling.
Which doesn’t make a whole lot of sense
to me, I’m sure you know about Coinbase
Custody, it’s their custodian solution,
which is the largest in the world, having
billions upon billions under its management,
for more than 150 different clients in 14
different countries.
Then just in February of this year, they were
the 1st custodian to pass 2 major security
evaluations, SOC1 and SOC2
But...Now, JP Morgan can compete with Coinbase
at their own game??
Doesn’t make sense…Until, you realize
that Coinbase custody was built for institutions
and not regular people... to become a customer,
you either have to be a business or an accredited
investor.
So, this is how Coinbase has been providing
custody of regular customer funds, like you
and me.
Coinbase, is a customer of Coinbase custody.
From the custody website...it says “Coinbase
Custody operates as a standalone, independently-capitalized
business to Coinbase, Inc.
Coinbase Custody is a fiduciary under NY State
Banking Law.
All digital assets are segregated and held
in trust for the benefit of our clients.
Which they received in 2018...from a blog
post “Coinbase Custody Receives Trust Charter
From The New York Department of Financial
Services”....so why all this work from Coinbase,
to have one of it’s banking partners come
in to swoop up their booming custodian business?
Insurance my friends.
It all comes down to insurance of those assets.
Now for the regular Conibase app, for retail
investors...not Coinbase Custody, we get this
for our funds “Coinbase prioritizes the
security of our customer's funds, all digital
currency that Coinbase holds online is insured.
If Coinbase were to suffer a breach of its
online storage, the insurance policy would
pay out to cover any customer funds lost as
a result.
Coinbase holds less than 2% of customer funds
online.
The rest is held in offline storage.
So, online...those cold coins...of which most
of their regular customer assets is 98 percent...is
actually uninsured as of right now.
Which they told us in April of last year.
Coindesk covered it, in an article titled
“$255 Million: Coinbase Confirms Extent
of Crypto Insurance Coverage”...so 2 percent
of their funds is worth 255 million, which
means the other 98 percent about 12.5 billion
in cold storage is uninsured?
Ya, that is probably scary as fook, for Coinbase,
because that is a ton of money, and they have
seen what happens to other exchanges, when
they lose it….*cough *cough Bitfinex
Here is something else interesting, I found….with
Coinbase Custody, if you store your assets
with them, you get a little perk….they insure
cold storage too, which I’m sure the Trust
designation by New York allowed them to do
that for custody...but there's still limitations
with even that insurance, from the section
on what percent of your assets intend to be
covered by this policy it states “We carry
an annually renewed commercial crime policy
that carries a $255m limit (per-incident and
overall), with Coinbase Global as the named
insured...so again limited to 255 million,
but with Custody they can do cold storage.
Well shoot guys, you got a ton of money filling
up under your control...and things are getting
riskay, so they need the Big Boils to come
to the rescue.
National Custodial banks they call them and
from Wikipedia, the 5 largest are the Bank
of New York Mellon, State Street Bank & Trust
Company, JP Morgan Chase, Citigroup, and BNP
Paribas Securities Services….
So why is this important?
These custodians can now hold crypto assets?
Well going to something like Vanguard, an
American registered investment advisor based
in Malvern, Pennsylvania with over $6.2 trillion
in assets under management, they state this
regarding the security of it’s assets, specifically
mutual funds “Vanguard mutual fund assets
are protected on your behalf by the strict
regulatory controls set forth in the Investment
Company Act of 1940.
This act requires each mutual fund to place
its cash and securities with a qualified custodian,
typically a U.S. bank…
Then regarding the safety of assets they say
“U.S. banking laws generally provide that
“segregated” mutual fund assets held by
a bank custodian aren’t subject to the liens
or claims of
the custodian’s creditors or of the Federal
Deposit Insurance Corporation (FDIC).
To further mitigate risk, Vanguard takes the
precaution of using several different independent
custodian banks.
These banks include The Bank of New York Mellon,
Brown Brothers Harriman & Co., JPMorgan Chase
Bank, and State Street Bank and Trust Company.
So, again the big names, those custodians
on the wiki... but here is the thing I think
is happening.
By these guys providing custody, the assets
won’t be subject to liens or claims of the
custodians creditors or of the FDIC.
Just like mutual funds...
Or it's the 1st step to getting them there.
Coibase has billions upon billions of dollars
of assets that are insured.
The risk of that is beyond their control,
and from what I see...they are bending the
knee to the banks, which means JP Morgan will
eventually have control of your assets.
But it’s crypto, and we don’t necessarily
need to store it with you Coinbase, so suck
a nut JP Morgan.
Cheers, I’ll see you next time!
