Wall Street’s embrace of crypto just got tighter as Circle struck a deal with America’s oldest bank.
Circle agreed to have BNY Mellon become the primary custodian of its USDC reserves. At first glance, it’s a strange-bedfellows alliance between a nearly 10-year-old crypto pioneer and a bank founded in 1784 by Alexander Hamilton. But it’s also a sign of more deals to come.
“It’s a significant inflection point and sea change,” Logan Allin, founder and managing partner of Fin Venture Capital, told Protocol.
Circle’s USDC, which is pegged to the U.S. dollar, is one of the fastest-growing cryptocurrencies today, with more than $52 billion in circulation. Since it’s backed dollar-for-dollar, there are a lot of reserves to keep safe, and that’s the kind of thing banks like BNY Mellon are good at.
“Circle wants to provide assurance about the safekeeping of the reserve assets underlying the USDC stablecoin,” Klaros Group partner Jonah Crane told Protocol. As USDC grows in circulation, “Circle will need larger partners,” he added.
That’s especially important given all the questions in Washington about how stablecoins are backed. Circle CEO Jeremy Allaire said in August that the USDC reserves are made up of cash, cash equivalents and “other high-quality investment-grade assets, all issued within the United States rather than offshore.”
In October, the CFTC fined Tether, which it accused of making a misleading claim that it backed its USDT cryptocurrency dollar-for-dollar.
The Circle partnership also underlines growing ties between the crypto industry and Wall Street — a different picture than the one early crypto pioneers painted of their industry supplanting existing financial institutions.
BNY is one of several Wall Street institutions that have steadily expanded into the crypto market. Last year, the company announced that it had formed a new business unit focused on digital assets to help clients interested in the growing cryptocurrency market.
“Crypto has always been a ‘libertarian’ movement, but you cannot operate outside of the established financial systems into perpetuity while expecting to have digital assets be widely adopted in ‘off-chain’ mainstream commerce and capital markets,” Allin said.
The partnership also underlines the growing importance of stablecoins. Allin called the USDC “the future of online and offline commerce and payments in digital assets.”
“Given the volatility of other currencies, there’s no way anyone will use [bitcoin] to buy a pizza again,” he said.
