Why Virginia Could Let Banks Offer Crypto Custodial Services

Per a report from TheStreet, Virginia will allow banks to offer crypto custody services. The state’s House of Delegates recently approved a banking bill last week to pass the legal framework to support the service.

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According to the report, the proposal recently unanimous support from the local legislators. Within the week, Virginia’s governor Glenn Youngkin is set to sign the bill into law. TheStreet quotes the following segment of the amendment:

A bank may provide its customers with virtual currency custody services so long as the bank has 26 adequate protocols in place to effectively manage risks and comply with applicable laws.

The bill was introduced by legislator Cristopher Head, the report added. Banking institutions will need to comply with three requirements to provide crypto custody services, such as the implementation of risk management services, insurance coverage, and will need to create an “oversight program”. TheStreet added:

Acting in a fiduciary capacity, the bank shall require customers to transfer their virtual currencies to the control of the bank by creating new private keys to be held by the bank.

A separate report from Fox Business quotes Head. In an interview with the mainstream media, the legislator said to have been inspired by regulations passed in Texas.

This territory is amongst the most crypto and Bitcoin-friendly in the U.S., and in past years has approved bills to support the BTC mining industry and incentivize crypto companies to move into the state. Head said:

I came up with the idea for HB 263 last summer after reading about how Texas was addressing the issue of cryptocurrency and who is permitted to hold the keys to one’s cryptocurrency purse. Texas decided to tackle this topic of cryptocurrency custodian services through its regulatory process. I discovered that no state at that time, nor to date, has addressed cryptocurrency custodian services legislatively.

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Not Your Keys, Not Your Crypto Gains More Relevance

Of course, some crypto investors might be deterred from using the bank’s custodial services. The financial institutions would be in control of the private keys holding the funds in BTC or other cryptocurrencies. Therefore, the banks will effectively own funds in digital assets.

Although some users might think the services and the bill go against the very ethos of the industry, Head seems proud that Virginia will become one of the first states to enable these services. In the interview he added:

By codifying the ability for state-chartered banks to become custodians of cryptocurrency, this will make Virginia the first in the country to provide this ability to banks through legislation.

The legislator compared the new services to a deposit box where a bank provides the user with a space in its vault to hold their assets. In the current U.S. regulatory context, where regulators and politicians continue to compare digital assets with the “Wild West”, however, it might be riskier to use the new service.

Head, running for Virginia’s state Senate, acknowledges the relevance that crypto is gaining in the global financial system. He said:

Cryptocurrency is something to which everyone should pay attention. This is an emerging economic asset that is growing in popularity, and that has significant potential for economic development in areas that embrace it.

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At the time of writing, the total market caps of Bitcoin and other digital assets stand at $1.6 trillion with a 1.24% loss on the 4-hour chart.