Citigroup's Crypto Pivot: Crypto Custody Enters the Era of Institutional Expansion
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Citigroup's Crypto Pivot: Crypto Custody Enters the Era of Institutional Expansion
When traditional banks enter and promote end-to-end custody of crypto assets and asset tokenization, this is a signal that it has entered the "execution and implementation" phase.
Navigating Web3 tides with focused insightsAuthor: ODIG Invest
With improving regulatory conditions, traditional banks are restarting or expanding their digital asset custody product lines, marking a broad return.
As early as October 2022, BNY Mellon's digital asset custody platform launched in the U.S., holding and transferring BTC/ETH for selected clients. Recently, BNY Mellon has been conducting public trials in tokenized deposits and payment settlements to reduce settlement friction and advance programmable bank funds. This could involve BNY’s Treasury Services, which processes around $2.5 trillion in payments daily, along with its custody and management of approximately $55.8 trillion in assets.
In mid-October just past, Citi Group announced it is advancing institutional-grade crypto custody services, planning to launch related custody operations by 2026, aligning with improved regulatory environments.
This is driving significant institutional inflows: in 2025, global crypto ETFs attracted $5.95 billion, and institutional Bitcoin holdings grew by 46%. Bank-grade custody services, leveraging strict regulatory frameworks and asset segregation advantages, are now participating in and reshaping market competition, while also catalyzing expansion in tokenized deposits and stablecoin infrastructure.
Citi’s shift may reflect the evolving stance of traditional financial institutions toward the crypto market in recent years: progressing from observation and pilot programs to gradual implementation—from testing on-chain payment and settlement, to placing bank liabilities on-chain, then moving physical assets on-chain, and finally offering native crypto asset custody.
Citi executives have publicly stated their view that stablecoins will expand beyond crypto trading tools into mainstream economies, seeing crypto as part of mainstream financial infrastructure, through a series of actions including:
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Launching the CIDAP platform: clarifying Citi’s strategic framework for digital assets.
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Partnering with SDX (a wholly-owned digital asset subsidiary of Swiss exchange SIX Group): Citi acts as tokenisation agent and custodian, providing tokenization services for private equity and unlisted company shares.
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Expanding into tokenized issuance and custody services: offering on-chain services for bonds, funds, and private assets.
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Citi is considering issuing its own stablecoin and actively exploring custodial and payment applications for assets backing stablecoins.
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Collaborating with Payoneer to explore payment and settlement services; Citi’s "Token Services" is already used for cross-border, 24/7 transfers.
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Citi is developing crypto asset custody services, targeting launch by 2026.
This not only provides trusted custody for institutional clients but also gradually connects traditional core banking functions—deposits, settlement, custody, and asset services—with tokenization, thereby securing access points to the next-generation financial infrastructure.
These initiatives can be summarized as the main exploration paths of traditional banks in the crypto space, primarily including:
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Institutional-grade custody: offering cold/hot wallet or hybrid custody services under compliant, audited, insured, anti-money laundering (AML), and fiduciary legal frameworks to meet compliance needs of large asset managers, pension funds, and insurance companies.
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Tokenized assets with integrated custody and issuance: tokenizing traditional assets (fund shares, government bonds, deposits) and combining "custody + trust management + underwriting/market making" into a single offering, delivering comprehensive on-chain asset services.
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Trading and settlement infrastructure: moving internal clearing and interbank payments on-chain (programmable money) to shorten settlement cycles and reduce counterparty risk.
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Partnership / white-label / sub-custody models: collaborating with crypto infrastructure providers such as Anchorage, Fireblocks, Coinbase Custody, and NYDIG, combining traditional banks’ compliance and fiduciary strengths with crypto firms’ on-chain technology to bring products to market.
When traditional banks enter and promote end-to-end crypto asset custody and asset tokenization, it signals they have moved into an “execution and implementation” phase.
Further observing changes in exchange reserves: BTC exchange reserves have dropped to their lowest level since 2018, decreasing by 668,000 BTC since November 2024. This trend may indicate institutions are shifting from exchanges to self-custody and ETF models. Under institutional custody dominance, the custody market has reached $683 billion, with banks and ETFs accounting for over 65%.
What will we see? — Explosive growth in tokenized assets
Effective division of custody roles will emerge between large traditional custodian banks and crypto-native custodians, with hybrid models—partnerships, white-label, and sub-custody—dominating in the short term, leveraging respective strengths.
In the near term, more major banks will announce or pilot custody products, and institutional acceptance of combined "bank-grade custody + third-party on-chain operations" will rise.
Custody and settlement functions will become more tightly integrated, led by a few large banks, leading to market stratification: large institutional capital flowing primarily into compliant modules offered by banks and custodians; liquidity and innovation still driven by native crypto ecosystems (DEXs, lending protocols, etc.).
What future landscape will emerge?
We will see increasing numbers of compliant tokenized products. As regulation clarifies and technology matures, the industry will experience greater competition and consolidation, with stronger integration of custody and clearing: banks will offer services spanning from funds (tokenized deposits) to assets (tokenized securities).
Additionally, large custodian banks will dominate institutional-scale capital flows (pensions, sovereign wealth, ETF issuance custody), and convergence across custody, trading, payment, and settlement dimensions will advance—custody becoming not just safekeeping, but an integral part of the broader financial service chain, with native crypto services also integrated, preserving advantages in trading, DeFi access, and rapid innovation.
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