In a Bear Market, Promontory is Bullish on Digital Assets

The following is a guest blog post by Ray Strecker, Managing Director and Co-Lead, and Max Bargiel, Senior Principal Consultant in Promontory’s Digital Assets Practice.

Our experience and perspective

Promontory Financial Group, a business unit of IBM Consulting, is a global leader in strategy, risk management, and compliance consulting. Our Digital Assets practice serves many clients, including crypto natives and fintechs, traditional securities firms and banks, and state and federal regulatory agencies. Our assignments include strategy and licensing support, program design and build, risk assessments and analyses, asset due diligence, audit/regulatory exam guidance and support, and deep-dive industry training–this provides us with a unique lens into the key challenges facing the digital assets industry as it continues to grow and scale.

Trends for crypto natives and fintechs

Crypto natives and fintechs have been most directly impacted by the “crypto winter,” facing financial pressures resulting from declines in market prices and reduced trading volumes. The collapse of Celsius and the Terra/Luna stablecoin pair revealed flawed business models that failed to learn from historic bank failures and the perils of over-reliance on financial engineering in traded products.,[1]

Despite this, Promontory sees new firms entering the digital asset market and established firms expanding into the U.S. market. Investment in risk and compliance programs is strong, and skilled practitioners are in high demand as consultants and full-time permanent employees. Crypto natives have seen growing demand from institutional investors, who see digital assets as an alternative investment class that will emerge from the downturn and grow. Even as they seek to cut costs, firms have invested in fortifying their risk and compliance programs. The weekly drumbeat of large cyber breaches and the increasing size and frequency of enforcement actions for anti-money laundering (“AML”) or sanctions violations, unlicensed activities, and insider trading all underscore the necessity of these investments. Where faced with regulatory uncertainty, firms are hedging and pursuing licenses and registrations with multiple state and federal regulatory bodies, as well as self-regulatory organizations. Promontory continues to see strong demand from crypto natives and fintechs for digital asset due diligence as it becomes clear that regulators will hold firms responsible for supporting digital assets associated with illegal activity. Firms are also taking increased care to understand which assets are likely to draw attention from the Securities and Exchange Commission (“SEC”) on digital assets that exhibit “security-like” features.[2]

Trends for traditional financial services firms and banks

Traditional financial services firms and banks have started to explore and enter the digital assets space. These firms tend to have a more conservative risk appetite than crypto natives and fintechs and a focus on the regulatory constraints governing their participation as they develop an institutional understanding of the digital assets space and its related risks. As a result, Promontory has seen strong demand for broad, comprehensive digital asset training, including from large banks. To date, banks have sought a wide range of advisory services, including Know Your Customer (“KYC”) program enhancements to provide traditional products and services to digital assets clients, as well as comprehensive advisory support for their provision of digital asset services, including strategies around custodial and sub-custodial solutions.

Some large traditional financial institutions, particularly banks that want to offer custody-related services for digital assets, have delayed product launches in recent months in response to SEC Staff Accounting Bulletin 121, which calls for reporting of digital assets under custody as assets on the bank’s balance sheet, thereby increasing capital requirements.[3] Notwithstanding some of the challenges large banks face in integrating digital asset services, adoption continues. For example, on October 11, BNY Mellon announced the launch of its digital assets custody platform, enabling the bank to provide custody services to customers for bitcoin and ether assets.[4]

Regulatory trends

U.S. state and federal regulatory agencies have noted the growth of the digital assets industry and signaled that they understand the need for regulatory clarity and improved coordination. Earlier this year, President Biden issued an executive order, Ensuring Responsible Development of Digital Assets, to promote greater regulatory coordination on rulemaking and supervision in the rapidly developing digital assets space, calling for a “whole-of-government” approach to address the risks and challenges posed by digital assets without stifling innovation.[5] The executive order culminated in several reports covering digital assets development, including a focus on a federal payments framework and increased private sector/industry consultation. The reports also signaled the administration’s goal to harmonize regulation across states. This would likely leverage best practices in rulemaking and supervision as certain states have already developed guidance tailored to digital assets’ unique risks.

Elsewhere, state regulators continue to advance their regulatory frameworks. In 2020, Promontory partnered with the Wyoming Division of Banking to develop the first set of supervisory manuals related to all dimensions of digital assets risk and compliance.[6] Since then, Wyoming has remained at the forefront of digital asset innovations as the first state to recognize the legal status of decentralized autonomous organizations (“DAOs”). In 2022, Promontory advised Nebraska’s Department of Banking and Finance (“NDBF”) in establishing regulatory examination guidance as it seeks to implement the Nebraska Financial Innovation Act and supervise digital asset depository institutions chartered under the act. The Nebraska Financial Innovation Act has a strong consumer protection component that we anticipate may serve as a model for future regulation, particularly as consumer protection remains a priority for federal regulators. Both Nebraska and Wyoming will be states to watch as federal regulators look to advancements in state regimes to establish a comprehensive federal regulatory framework.

Promontory has seen demand from federal regulators for comprehensive digital assets training as they prepare to supervise entities within the space. Federal regulators have also looked to Promontory to share its experience developing supervisory guidance for Wyoming and Nebraska and its unique perspective in supporting many digital asset natives, including top exchanges, custodians, and brokerages.

Looking abroad, the trend is the same: regulatory frameworks continue to be established and evolve globally to meet the rising demand of the growing digital assets industry, with some jurisdictions ahead of others. For example, the EU is finalizing its landmark Markets in Crypto Assets (“MiCA”) legislation, which is expected to introduce a range of new digital asset requirements, particularly related to stablecoins.[7]

Other broad industry trends

 This year has seen increased partnerships between digital asset natives and traditional financial services firms. For example, BNY Mellon announced a partnership with Circle to custody fiat reserves for the US Dollar Coin (“USDC”) fiat-backed stablecoin,[8] and State Street announced a partnership with custody technology provider Copper to develop a digital asset custody solution.[9] Despite evolving regulatory frameworks and a bearish stock market, 2022 continues to prove itself a year of legitimizing the digital assets industry as traditional financial services firms embrace digital asset products and market participants.

Promontory has also observed an increased interest in distributed ledger technology (“DLT”) and blockchain capabilities by large traditional players for faster settlements. For example, in August, the Depository Trust & Clearing Corporation (“DTCC”) announced the launch of the Project Ion Platform, which uses DLT for faster processing and settling of bilateral equities transactions.[10] Additionally, Western Alliance Bank announced a partnership with Tassat Group in late 2021 to provide a private Ethereum blockchain-based payments network to offer its business clients instant payments at any time of the day.[11]

The tokenization of assets presents a new potential frontier for growth within the industry, creating opportunities to lower costs around the securitization of assets. In September, Securitize announced the launch of a fund tokenizing an interest in KKR’s Health Care Strategic Growth Fund II on the Avalanche blockchain.[12] Although it is still too early to predict the impacts of tokenization and how widespread its adoption will be, this trend has the opportunity to disrupt the traditional financial services space.

Promontory’s outlook

Despite the recent market downturn, Promontory continues to see strong investment in digital assets and associated services, including from institutional investors, traditional financial services firms, and regulatory bodies. We remain optimistic about the future of the digital assets business and the innovative potential that blockchain and DLT can bring to the financial industry. The recent market decline is a broad downturn that touches a wider range of assets, such as stocks and bonds. Digital assets, like traditional securities, are expected to rebound.

Today’s bear market is an opportunity for firms seeking to do business in a compliant manner to build their control frameworks. While we have yet to see universal institutional adoption of digital assets, traditional financial services firms increasingly recognize the potential of digital assets and associated technologies. This trend will only continue with increased regulatory clarity going forward.

There is a general sense of bipartisan support for responsible innovation within the digital assets space; as a result, Promontory expects to see major federal legislation soon–perhaps as early as 2023–including additional guidance around the issuance of stablecoins, guidance on a federal framework for payments, and potentially guidance on the respective supervisory authority of the SEC and CFTC over digital assets.

In the meantime, the reports issued in response to President Biden’s executive order signal that the digital assets industry should continue to expect:

  • An increased focus on consumer and investor protections and increased focus on consumer compliance, disclosures, and market integrity policies (including controls to prevent insider trading)
  • Continued focus on enforcement, particularly where issues of safety, soundness, and financial crime compliance loom large
  • Heightened regulatory expectations around the use of innovative tools and technologies, including blockchain analytics, identity verification, fraud, and market surveillance tools, to keep pace with evolving industry practices
  • Opportunities to engage directly with regulatory agencies through notices of proposed rulemaking and requests for comment

Given our unique experience helping draft regulatory guidance tailored to the digital assets industry, our team of former regulators, and top industry practitioners, Promontory is uniquely positioned to help the digital asset industry, its partners, and its regulators evolve safely and soundly.

We are bullish on the future of digital assets and are excited to see what the coming year brings.

Ray Strecker is a managing director and co-lead in Promontory’s Digital Assets Practice.


Max Bargiel is a senior principal consultant in Promontory’s Digital Assets Practice.



[1] Morrow, A. (2022, May 13). Why this obscure corner of the crypto world has investors in a panic. CNN Business.

[2] Framework for “Investment contract” analysis of digital assets. (2019, April 3). Securities and Exchange

[3] Staff accounting bulletin No. 121. (2022, March 24).

[4] BNY Mellon launches new digital asset custody platform. (2022, October 11). BNY Mellon.

[5] The White House. (2022, September 16). FACT SHEET: White House releases first-ever comprehensive framework for responsible development of digital assets.

[6] Brett, J. (2020, October 2). An Inside Look At Wyoming State Regulators Prepping For First Crypto Bank Examinations. Forbes.

[7] Schickler, J., & Handagama, S. (2022, September 21). EU finalizes legal text for landmark crypto regulations under mica. CoinDesk.

[8] Lang, H. (2022, March 31). BNY Mellon chosen as custodian for circle’s stablecoin reserves. Reuters.

State street to develop digital custody in collaboration with (2022, March 9). State Street.

[10] DTCC’S Project Ion Platform Now Live in Parallel Production Environment, Processing Over 100,000 Transactions Per Day on DLT. (2022, August 22). DTCC.,1%20and%20extended%2 .

[11] Western alliance bank partners with Tassat to deliver blockchain-based payments network to business clients. (2021, December 2). Western Alliance Bank.

[12] Securitize launches fund providing tokenized exposure to KKR fund. (2022, September 13). Securitize.