BNY Mellon eyes a $20 Billion Cryptocurrency Market
Bizarrely, BNY Mellon (NYSE: BK); the financial institution also known as Bank of New York Mellon, is an intriguing cryptocurrency buy.
In essence, BNY Mellon’s traditional role as a custodian of assets could enable it to cash in on cryptocurrency. Securities and Exchange Commission (SEC) regulations require brokers, exchanges, and others to store investors’ assets with institutions like Bank of New York.
Consequently, BNY and Coinbase Inc. are trying to set up a crypto-custody service, Bloomberg reports. Under crypto-custody BNY Mellon will store cryptocurrencies and other digital assets.
BNY Mellon eyes a $20 Billion Cryptocurrency Market
The hope is to offer cold storage for up to $20 billion worth of cryptocurrency. Cryptocurrency exchanges and brokers want cold storage because custodians would take the problems and liabilities associated with storage.
For example, many exchanges and brokers have a hard time getting insurance for stored assets. However, established custodians like BNY Mellon already have such insurance.
On the positive side, all that is standing between companies and BNY Mellon and cryptocurrency storage is SEC approval. On the negative side, the cryptocurrency market has dropped dramatically in recent weeks losing up to 80% of its value.
Can BNY Mellon and Coinbase Take Cryptocurrency to Wall Street?
BNY Mellon is developing a close relationship with Coinbase. For instance, former BNY Executive Jeff Horowitz is now Coinbase’s Chief Compliance Officer. Forbes reports that Coinbase achieved a $156 billion cryptocurrency transaction volume in July.
The hope is that Horowitz can make Coinbase Custody a preferred solution for hedge funds and institutional investors. Unfortunately, the relationship between Coinbase and BNY Mellon is not exactly clear.
Horowitz previously oversaw compliance for $1.8 trillion in assets at BNY Mellon’s Pershing. Therefore he is certainly qualified to take cryptocurrency to Wall Street.
The cryptocurrency market is certainly huge, BNY Mellon estimates that there are 1,000 cryptocurrencies with a market capitalization of $400 billion. On the other hand, US equities have a market capitalization of $25 trillion.
Therefore, cryptocurrency is a small portion of the global economy. However, cryptocurrency is growing fast.
Why BNY Mellon is so interested in Cryptocurrency
It is easy to see why BNY is so interested in Cryptocurrency; one of its main businesses is settlements. Tellingly, settlements are money transferred between countries. For example funds an oil company in Colombia moves to its bank in New York.
Theoretically, cryptocurrency can make transfers, cheaper, faster and more secure. That is why BNY Mellon is experimenting with Utility Settlement Coin (USC). The USC is a cryptocurrency designed for bank transfers. BNY; and partners such as UBS, hope USC will one day replace clearinghouses with a more streamlined payment mechanism, Quartz reports.
They could conduct many international banking activities including international payroll, currency conversion, currency trading, remittances, and money transfer on the blockchain. Upfront is apparently developing tools for international payroll with its BitWage project.
Is BNY Mellon Making Money?
Ultimately, BNY Mellon is making money without cryptocurrency. Bank of New reported a $4.138 billion gross profit, an operating income of $1.391 billion, and a net income of $1.389 billion on June 30, 2018. Importantly, the gross income equaled the revenue of $4.138 billion for 2nd Quarter 2018.
More importantly, BNY Mellon has a lot of experience with cash, it reported an operating cash flow of $4.20 billion, an investing cash flow of $16.644 billion, and a free cash flow of $2.088 billion for 2nd Quarter 2018. Therefore, BNY Mellon has the means to distort the cryptocurrency markets if it wishes.
Beyond that BNY Mellon has a lot of cash to place with. For example it reported $96.611 billion in cash and equivalents and total assets of $352.958 billion on 30 June 2018. Tellingly, those figures exceeded the debt of $47.021 billion and 2nd Quarter liabilities of $311.182 billion.
Therefore if you looking for investments exposed to cryptocurrency and its risks, BNY Mellon could be a good choice. BNY has the resources to be a major player in cryptocurrency markets and the ability to store digital assets.
On the positive side, BNY Mellon pays a dividend. Its investors took home a 28¢ dividend on August 10, 2018. That dividend was up from 24¢ on May 11, 2018.
Likewise, BNY Mellon shareholders enjoyed a dividend yield of 2.19%, an annualized payout of $1.12, and a payout ratio of 26.8% on 20 September 2018. BNY Mellon has delivered five years of Dividend growth.
I think the market undervalued BNY Mellon at $53.46 a share on 21 September 2018. Therefore, I class BNY Mellon (NYSE: BK) as a value buy with or without cryptocurrency. Buy BNY Mellon because it is a good stock, right now. The cryptocurrency talk is just icing on the cake.
