BNY Mellon overtakes Fidelity in institutional Bitcoin custody

The end of Coinbase concentration

BNY Mellon’s September cold storage integration now exceeds the digital asset vault capacity of Fidelity Digital Assets and signals the end of Coinbase’s era of institutional dominance. This development follows the bank’s launch of its digital asset custody platform in early 2026. Coinbase Custody currently manages 84% of all U.S. spot Bitcoin ETF assets, amounting to approximately $77 billion of the $91.7 billion in total ETF holdings. This concentration creates a massive risk for the industry because the SEC rescinded Staff Accounting Bulletin 121 and replaced it with SAB 122 in January 2025, a move that allows large banks to assess crypto custody risks using standard FASB contingency frameworks instead of the punitive balance-sheet treatment that previously made bank-held crypto custody prohibitively expensive. Morgan Stanley filed for a National Trust Bank Charter in February 2026 to address these same concentration risks.

The shift toward in-house infrastructure targets the risk of a single counterparty. BlackRock’s iShares Bitcoin Trust added Anchorage Digital Bank as a second custodian in April 2025 to diversify its holdings. Morgan Stanley launched MSBT, the first spot Bitcoin ETF issued directly by a major U.S. bank, in April 2026. This bank uses BNY Mellon and Coinbase for custody. It intends to bring custody in-house eventually. Its 0.14% expense ratio targets the allocation decision, the trading relationship, the custody infrastructure, and settlement services.

Technical standards and regulatory shifts

Institutional security relies on FIPS 140-2 Level 3 certified Hardware Security Modules. Thales and Securosys provide these modules for data center deployment. Most new builds use MPC or a hybrid approach. Fireblocks uses MPC to distribute key shares across different geographies. This allows for key rotation without on-chain transactions. BitGo uses a 2-of-3 multisig configuration. This requires two of three independent keys to authorize a transaction.

You probably already know that losing private keys means losing everything. Fidelity Digital Assets uses an omnibus model. This model stores all client funds together and only separates them on the accounting level. I find the lack of physical separation in the Fidelity model a serious security drawback. The GENIUS Act, enacted in July 2025, also expanded the role of custody by setting federal standards for stablecoin reserve management.

The new hierarchy of scale

The digital asset custody market will reach $0.70 trillion in 2026. It is projected to hit $2.12 trillion by 2031. BNY Mellon manages $59.4 trillion in assets under custody as of March 2026. Fidelity has $17.5 trillion in total assets under administration. In 2026, Anchorage Digital expanded its U.S. federally chartered trust operations with a new staking-integrated custody offering.

State Street and Deutsche Bank are also preparing proprietary digital asset custody platforms. Deutsche Bank participated in a $65 million funding round for Taurus SA. BNY Mellon’s "no-objection" from the SEC is contingent on the bank’s use of individual crypto wallets. This structure ensures customer assets stay segregated from the bank’s assets during insolvency. This structure was developed with the SEC’s Office of the Chief Accountant. The Office of the Comptroller of the Currency issued IL 1183 in March 2025, which confirmed that national banks can offer crypto custody without prior approval. Will BNY Mellon’s scale eventually force the remaining 16% of ETF assets away from Coinbase?