State Street will expand crypto services for private-fund clients to meet growing demand

The second-oldest bank in the United States, State Street, is looking to offer its private-fund clients exposure to cryptocurrencies. 

State Street partners with Lukka to expand crypto service offerings

In a partnership with a New York-based cryptocurrency data and software service firm Lukka, State Street will leverage the former’s product suite to expand its Digital Asset Fund.

The crypto software firm will provide State Street’s private-fund clients with data for valuation services.

The American bank with over $42.6 trillion in assets in either custody or administration, cited that the reason behind the recent development was to help meet customer’s growing demand. 

The partnership will also allow State Street to offer collection, reconciliation, processing and reporting for digital asset services. The Boston-based bank will leverage Lukka’s software to incorporate cryptocurrencies along with its private clients’ alternative investments. 

Wall Street has seen an increase in digital asset offerings in the past few months, with JPMorgan, Goldman Sachs and Bank of New York Mellon starting to offer its clients exposure to the new asset class.

In June, State Street built a new division dedicated to cryptocurrencies, central bank digital currencies, blockchain and securities tokenization called State Street Digital. 

Led by Nadine Chakar, she said in a statement that the popularity of digital assets is showing “no signs of a slowdown,” and that the new business unit will continue to build the infrastructure required to develop cryptocurrency servicing models to meet its clients’ growing demand.

Ron O’Hanley, the chairman and CEO of State Street, said that the firm sees “digital assets as one of the most significant forces impacting our industry over the next five years.”

The crypto arm of the bank will be integrated with its proprietary electronic trading platform since State Street aims to be prepared to serve clients as their appetite for digital assets increases. 

State Street has been in the digital asset industry for a number of years. The institution started working with Gemini in 2019 on a cryptocurrency pilot. The bank also became one of the co-founders of Fnality, a consortium developing a blockchain-based payment system.

The Boston-based bank partnered with Lukka as early as 2018 to co-develop crypto asset fund administration services and led the firm’s Series C funding in light of the growing popularity of digital assets. 

While digital assets come with inherent risks, which could deter institutional investors from delving into the industry, traditional custodians like State Street or advisory platforms could be offering a viable solution. 

The new division also has plans to create new liquidity venues for clients and investors. 

Although Bitcoin exchange-traded funds (ETFs) have not been approved in the United States so far, State Street was named as the fund administrator for VanEck’s BTC ETF.

Pending approval, VanEck has appointed the institution to be the administrator and transfer agent. State Street has been working closely with VanEck on various aspects of the launch, providing services including ETF basket operations, custody of the shares, fund accounting and order-taking.