Digital Asset Custody: Why Banks Are Racing to Catch Up

For decades, banks have controlled access to the financial system, on their own terms. The list of gripes by the disillusioned is long. For example, banks have been known to “debank” people they have political differences with, or debank people simply for owning crypto.

There are other complaints, claiming that traditional finance has often been built around systems that favour institutions over individuals. Even in the age of mobile banking and payment apps, unfair practices like hidden charges, and restrictive account requirements (like not having a permanent address) have left millions under-served or locked out entirely.

It was against this backdrop that cryptocurrency emerged. Bitcoin’s whitepaper outlined a vision for peer-to-peer money that didn’t require trust in banks or governments. Crypto offered a radical alternative: an open, borderless, and inclusive system where people could transact directly, control their own assets, and participate regardless of geography or social status.

For years, traditional institutions dismissed crypto as a niche experiment. But as adoption has grown, the balance of power has begun to shift. The possibility that people might one day transact, save, and invest entirely outside of banks has become real. Faced with this existential threat, banks are increasingly adapting.

The Custody Race

Today, some of the world’s largest financial institutions are building digital asset custody platforms. Custody is the foundation of their strategy: by holding clients’ crypto on their behalf, banks aim to reinsert themselves into the value chain of digital finance.

But this move isn’t just about safekeeping. It allows banks to layer on lending, trading, and tokenised securities, offering products that keep investors tethered to institutional infrastructure. Custody is a key control point for institutions, while self-custody keeps your ‘exit’ door open.

In effect, the same institutions that crypto was designed to bypass are attempting to buy into the system to maintain their influence.

What It Means for Users

For everyday investors, institutional custody brings both reassurance and risk. On one hand, the entry of major banks signals that digital assets are here to stay. It offers convenience and the promise of institutional-grade security for those who don’t want to manage private keys themselves.

On the other hand, it revives the very dynamics that crypto set out to escape. Handing control of digital assets back to banks risks recreating the same asymmetries: intermediaries deciding who can participate, under what terms, and at what cost.

The vision of a peer-to-peer financial network could become just another set of products bundled by the same institutions people sought to move beyond.

A System in Transition

The internet reshaped commerce by disintermediating entire industries, cutting out middlemen who once seemed indispensable. Crypto’s ambition is to do the same for finance. Banks, acutely aware of this, are now racing to secure their place in the digital asset economy.

Whether their efforts succeed depends on users. The choice is between convenience under institutional custody or sovereignty through self-custody. And as banks rush to buy into the system they once resisted, the question remains: will crypto continue its path as an alternative to banks, or will banks manage to fold it back into their orbit?

Why Custody Matters

At its core, crypto custody is about securely holding digital assets on behalf of clients. By offering custody services, banks can bridge the gap between the old financial world and the new, giving large investors the confidence and infrastructure they need to allocate capital to crypto. Big institutions are either piloting or already offering digital asset or tokenised security custody. Why the sudden rush?

It’s not just about fees from holding crypto; custody services open the door to lending, trading, tokenised securities, and settlement layers. In other words, custody is the foundation for banks to build the next generation of financial products.

What It Means for Users

For retail investors, the arrival of bank-grade custody can feel like validation: crypto is no longer “shadow money” but part of the mainstream financial system. It also gives newcomers peace of mind, knowing that if they don’t want to manage their own keys, trusted institutions will do it for them.

But there’s a trade-off. The crypto ethos has always been about cutting out the middleman, putting users in control of their own assets. Handing your coins over to a bank is convenient, but it also recreates the same system crypto was designed to disrupt.

A Historical Parallel

The internet transformed commerce by removing intermediaries. No more travel agents for booking flights, no more music stores for buying albums, no more bank tellers for paying bills. Crypto aims to do the same for finance.

Banks understand this, which is why they’re scrambling to redefine their role. If they don’t, the risk is clear: just as the internet sidelined many brick-and-mortar businesses, crypto could make traditional financial middlemen obsolete.

The Road Ahead

Real-world assets (like funds and bonds) will increasingly run on crypto tech. We’ll probably end up with a mixed outcome. Some people hold their own coins, while others might use bank-style custody products.

We’re at a turning point. For users, the choice will soon be between the convenience of institutional custody and the empowerment of self-custody. For banks, the challenge is to stay relevant in a financial system that may not need them in the same way it once did.

What crypto is to finance is what the internet was to commerce. It is a revolution that removes the middle layer. And right now, the institutions that once resisted change are racing not to be left behind by it.