The price of Bitcoin (BTC) is up 5% in the past 24 hours and currently trades at $9,600 after reaching a daily high at $9,664. The overnight increase in BTC coincides with an unexpected decision from the Office of the Comptroller of the Currency (OCC).

On July 22, the OCC said banks in the U.S. are allowed to hold cryptocurrencies. It essentially gave the green light to bank-operated crypto custodial services.

Within a day of the announcement, the cryptocurrency market surged. In tandem with BTC, Ether (ETH) also saw a substantial rally, as the price rose by 12%.

BTC USDT daily chart

BTC USDT daily chart. Source: TradingView

Is Bitcoin price reacting to the OCC decision?

In a formal statement, OCC Acting Comptroller, Brian Brooks said banks could serve “tens of millions of Americans” by supporting cryptocurrency custody.

Brooks said:

“From safe-deposit boxes to virtual vaults, we must ensure banks can meet the financial services needs of their customers today. This opinion clarifies that banks can continue satisfying their customers’ needs for safeguarding their most valuable assets, which today for tens of millions of Americans includes cryptocurrency.”

Effectively, this has opened the floodgates for banks to enter the cryptocurrency market and provide their clients with tools to invest in cryptocurrencies.

Throughout 2020, a consistent increase in institutional inflows into Bitcoin has continued to push the cryptocurrency market upwards.

In the second quarter of this year, Grayscale said it processed $905.8 million in inflow to its cryptocurrency products. The firm, which operates the Grayscale Bitcoin Trust, recorded $1.4 billion in total inflow over Q1-Q2.

Bank-run crypto custodial solutions could be an alternative to existing regulated Bitcoin investment vehicles. Investors may be interpreting this new development as bullish as it means more accredited and institutional investors could potentially invest in the cryptocurrency market in the long-term.

Peter Van Valkenburgh, the research director at non-profit organization CoinCenter, said:

“Accepting that centralized entities for cryptocurrency safekeeping and storage are unavoidable and essential, then it is excellent news that, thanks to the OCC’s new policies, there will be even more competition for providing those services. National banks entering the game expands that competition and may also allow more traditional institutional investors to deal in cryptocurrencies.”

It is possible that the unexpected announcement of the OCC fueled an abrupt increase in demand for top cryptocurrencies.

Industry executives react positively, but with some skepticism

The overall response to the statement of the OCC was positive. Industry executives generally said that it could result in more inflows into the cryptocurrency market in the medium-term.

But, Compound Labs lawyer Jake Chervinsky emphasized that the OCC is one of many regulators in the U.S. It is also unclear whether Brooks will remain as the Acting Comptroller for a long period.

Since banks move based on market demand, Chervinsky suggested that it does not guarantee an upsurge in banks supporting crypto custody. He said:

“Banks are ultimately businesses like any other, so they'll respond to customer demand. But OCC is only one of many relevant regulators, Brian Brooks may not be in charge there for much longer, and banks are psychotically risk-averse / compliance-focused.”

As such, it remains to be seen whether investors are merely using the news as a narrative to push up the market.