Why Banks Operating in OTC Crypto Markets Function as Intermediaries, Not Traders

The distinction between banking operations and proprietary trading in the crypto space has become increasingly important following recent regulatory clarifications. According to insights from industry participants analyzing the U.S. Office of the Comptroller of the Currency’s (OCC) interpretive guidance, national banks engaging in crypto transactions operate under a fundamentally different model compared to traditional trading desks.

The Broker Model: Transfer, Not Retention

In crypto OTC operations, banks play a crucial intermediary role that distinguishes them from profit-seeking traders. When clients initiate crypto asset purchases, banks temporarily acquire these holdings before immediately routing positions to liquidity providers (LPs) or other counterparties. This rapid transfer mechanism is the cornerstone of the banking model—inventory remains on the books for only a brief window, sufficient to match counterparties but insufficient to constitute meaningful position-holding.

This operational structure contrasts sharply with proprietary trading desks, where firms maintain inventory positions, accept price exposure, and generate returns through directional market bets. Banks in the OTC crypto space explicitly avoid this risk profile.

Economic Reality: Brokerage, Not Speculation

The economic implications reveal the true nature of bank participation in crypto OTC markets. Since banks neither accumulate inventory nor bear price risk, the activities structurally resemble classic brokerage services: connecting buyers with sellers and capturing transaction spreads. The bank’s role terminates once the match completes and positions transfer—no ongoing exposure, no market speculation, no profit extraction from price movements.

This framework aligns with regulatory intent, allowing banks to facilitate crypto trading activity while operating within constraints that prevent them from becoming active market participants with directional exposure.

Regulatory Recognition and Market Impact

The OCC’s recent interpretive letter essentially codified what operational practice already reflected: bank participation in crypto markets serves a liquidity and infrastructure function rather than a speculative one. By clarifying that intermediation constitutes a legitimate banking activity while proprietary trading remains off-limits, regulators have drawn a clear boundary that shapes how financial institutions can structure their crypto OTC operations.