As cryptocurrency moves deeper into the financial mainstream, Minnesota is opening the door for local banks and credit unions to compete in the digital asset economy. Beginning August 1, the state will allow financial institutions to offer crypto custody services, giving customers a regulated, local option for storing cryptocurrency.
Minnesota joins a growing list of states—including New York, Virginia, and Wyoming—that permit certain banks to custody crypto assets. The law authorizes Minnesota financial institutions to provide virtual-currency custody services in a nonfiduciary capacity and to work with third-party service providers or subcustodians. Institutions may also control the private keys—the secure credentials required to access wallets holding digital assets.
Protections for Investors
The bill also includes a number of safeguards for investors, beginning with the requirement that client assets be segregated from the institutions’ own assets. Banks and credit unions must maintain written policies governing risk management, internal controls, and cybersecurity. At least 60 days before taking custody of any crypto assets, institutions must submit written notice to the Minnesota Commissioner of Commerce describing those compliance measures.
“This is another sign that crypto is being pulled deeper into the regulated financial system,” said Joel Hugentobler, Cryptocurrency Analyst at Javelin Strategy & Research. “States are increasingly wanting existing compliance, risk management and security frameworks to apply to digital assets to build trust and capture fees.”
Leaving Room for Crypto Firms
Rep. Bernie Perryman, one of the bill’s primary sponsors, said the legislation is intended to ensure that Minnesota-based financial institutions can “evolve alongside their customers and members rather than forcing Minnesotans to rely on unregulated, out-of-state or offshore providers for services that are already in use today.”
That may sound like a challenge to established crypto custody firms such as Coinbase, but those companies are still likely to play a major role in the digital asset landscape. Traditional financial institutions will likely appeal to newer crypto investors looking for familiar, regulated providers, while experienced crypto users may continue to prefer established native-crypto platforms.
“This raises competition for sure, but Coinbase still has an edge in infrastructure, liquidity, wallets, and UI, so I don’t think it is as big of a threat to them as some might think,” Hugentobler said. “I’d imagine, over time, the market shifts towards more partnerships with embedded infrastructure rather than a winner takes all.”
