Citigroup’s Institutional Crypto Custody Expansion: A Catalyst for Digital Finance Transformation

Citigroup Steps into Institutional Crypto Custody

Citigroup, one of the foremost financial institutions on Wall Street, is set to officially launch cryptocurrency custody services for institutional investors during the upcoming year. This strategic move, built on years of technical advancements and comprehensive regulatory consultations, marks a pivotal moment in the integration of digital assets like Bitcoin (BTC) and Ethereum (ETH) into mainstream finance. It signals an era where cryptocurrencies are becoming an indispensable component of the global financial ecosystem, highlighting the growing institutionalization and acceptance of these digital assets.

Creating Competitive Edge: Citigroup’s Differentiated Strategy

Citigroup plans to differentiate itself in the market by employing a dual-faceted custody platform. The bank will deploy proprietary in-house systems exclusively for key clients while offering scalable solutions through partnerships with leading crypto technology firms to serve a broader institutional audience. Leveraging its arsenal of expertise in security, compliance, and risk management, Citigroup is poised to compete with and surpass crypto-native firms that currently enjoy market dominance. This approach positions Citigroup not just as another player but as a transformative force in the evolving custody service landscape.

Regulatory Shifts Fueling Institutional Crypto Adoption

The regulatory landscape in the United States has undergone critical changes that pave the way for banks to step into the world of digital assets. One key development is the reversal of SAB 121 — a 2022 U.S. Securities and Exchange Commission (SEC) provision that required custodied digital assets to be recorded as liabilities rather than assets. By lifting these constraints, banks no longer face disincentivizing capital-reserve requirements, clearing critical barriers to entry in the crypto custody market.

Additionally, the institutional appetite for crypto assets, spurred by the approval and growing popularity of Bitcoin ETFs, has placed increased demand on traditional financial institutions to provide trustworthy and reliable custody solutions. The rapid adoption of these ETFs, with their surging trading volumes, underscores the broader adoption of digital assets in the investment community.

Broadening Horizons: Citigroup’s Expansion in Digital Assets

Citigroup’s ambitions stretch beyond custody services to encompass a wider role in the digital asset ecosystem. This broader vision aligns with worldwide regulatory trends favoring cryptocurrency adoption. The passage of the GENIUS Act in the United States in 2025 has been instrumental in this context, establishing federal regulations for stablecoins and enabling banks to both issue and use them for cross-border settlements. With blockchain solutions increasingly woven into banking operations, Citigroup is well-positioned to capitalize on these regulatory advancements.

Japan’s Policy Evolution: A Case Study in Gradual Acceptance

Japan, another pivotal player in the global financial ecosystem, is reevaluating its regulatory approach toward digital assets. The Financial Services Agency (FSA) has been exploring policy changes that would enable traditional banks to consider cryptocurrencies such as Bitcoin as investment assets alongside stocks and bonds. This signals a stark shift from earlier regulations, which since 2020 had essentially barred Japanese banks from holding cryptocurrencies due to perceived risks to financial stability.

Factors driving this change include heightened institutional demand and more robust international crypto regulations. Additionally, the FSA is contemplating policies that would allow banking groups to register as cryptocurrency exchange operators. If implemented, such measures could enable Japanese financial institutions to directly engage in the digital asset sector, inching closer to harmonizing traditional finance and cryptocurrency.

Competition Heating Up: Market Dynamics in Custody Services

Currently, crypto-native firms such as Coinbase dominate the global cryptocurrency custody market. In fact, Coinbase Custody holds over 80% of the market share related to ETF-based crypto assets. However, the entry of financial heavyweights like Citigroup, JPMorgan, Deutsche Bank, and Goldman Sachs is poised to challenge the status quo. These traditional financial entities are exploring various applications for G7-backed stablecoins, extending from trade finance to securities settlements and cross-border remittances. This influx of institutional players is expected to recalibrate the competitive landscape significantly.

South Korea’s Regulatory Challenges and Opportunities

In contrast to the developments in the U.S. and Japan, South Korea faces challenges due to its relatively restrictive regulatory environment on digital assets. Although the Virtual Asset User Protection Act, implemented in mid-2024, introduced investor safeguards, restrictions remain on won-denominated stablecoins and financial institutions’ ability to engage with crypto. Presently, only non-profits and select crypto-native businesses can acquire digital assets, leaving South Korea’s financial institutions sidelined in the global crypto evolution.

The Financial Services Commission (FSC) in South Korea has hinted at relaxing rules, potentially allowing general corporations to participate in the crypto market under specific conditions from 2025. However, banks and other primary financial players remain barred from directly holding digital assets, reflecting ongoing concerns regarding financial stability and systemic risk transmission.

Merging Traditional Finance with Blockchain Innovations

Globally, financial systems are increasingly melding traditional banking frameworks with the innovation of blockchain technology. Stablecoins, tokenized equities, and on-chain settlement solutions are rapidly replacing outdated legacy systems due to their enhanced transparency, speed, and cost-effectiveness. The increasing alignment between traditional finance and blockchain-based systems is reshaping financial infrastructures on an unprecedented scale.

The Dawn of a New Financial Landscape

Citigroup’s foray into the digital asset space signifies more than just an expansion of services; it represents a paradigm shift in the global financial environment. Emerging innovations, supported by major banks, are redefining financial norms, erasing the lines separating traditional and digital finance.

For markets such as South Korea, catching up with global regulatory and technological trends is imperative. Collaboration between the public and private sectors will be critical to fostering innovation while maintaining competitiveness in this rapidly advancing financial frontier.

Conclusion: Embracing the Future of Finance

The distinction between traditional finance and crypto continues to blur, ushering in a new era of integrated financial infrastructure. For regions like South Korea to remain competitive, embracing digital assets as a cornerstone of future finance is essential. As cryptocurrencies become increasingly ingrained in the global economy, regulatory agility and strategic innovation will be vital to ensuring relevance in this transforming financial landscape.

(Kang Ryun-ho, a leading voice in global financial regulation and digital asset policies, has dedicated his career to crafting adaptive frameworks for the advancing financial sector. His expertise underscores the urgency of navigating this shift toward digital transformation.)