Minnesota to allow bank crypto custody as it bans ATMs in shift to regulated market
Key points
- Minnesota will allow state-chartered banks and credit unions to hold cryptocurrencies for customers starting August 1, 2026.
- The same date marks the start of a statewide ban on crypto ATMs and kiosks, with all existing machines to be removed by December 31, 2026.
- The state is steering digital asset activity into regulated financial institutions and away from informal, cash-based channels.
New law opens crypto custody for banks and credit unions
Minnesota Governor Tim Walz has signed House File 3709, authorizing state-chartered banks and credit unions to provide cryptocurrency custody services beginning August 1, 2026.
The law creates a formal regulatory framework for how these institutions manage, safeguard, and report digital assets. It pulls crypto custody into the oversight of the Minnesota Department of Commerce, aligning it with existing supervision of traditional financial products.
Under HF 3709, banks and credit unions must:
- Develop written policies for risk management, security, and internal controls specific to virtual currencies.
- Notify the Commissioner of Commerce at least 60 days before launching custody services.
- Submit documentation describing their risk management framework.
- Keep customer digital assets segregated from the institution’s own holdings to maintain clear ownership separation.
State-chartered banks will be permitted to offer these services in a fiduciary capacity, while credit unions will be limited to non-fiduciary, custodial roles.
Lawmakers aim to shift activity into supervised channels
Bill co-author Perryman said earlier this year that the objective was to update Minnesota statutes to match residents’ changing financial behavior, rather than leave them dependent on unregulated entities outside the state.
The state’s credit union association has argued that bringing crypto custody under formal oversight could reduce the risk of fraud, technical failures, and asset mismanagement by requiring structured controls and supervision.
Roughly 240 state-chartered banks and 82 credit unions will be eligible to apply the new framework. One St. Cloud credit union reported that about 20% of its members already hold digital assets, underscoring the potential demand for regulated local custody services.
Minnesota joins growing group of states with crypto custody rules
With HF 3709, Minnesota becomes one of several U.S. states that explicitly permit regulated crypto custody services within their banking systems. New York, Wyoming, and Virginia have already adopted similar measures.
Taken together, these state-level rules illustrate a broader move toward integrating digital assets into the traditional financial system under existing supervisory regimes, rather than leaving them solely in the domain of stand-alone crypto platforms.
Crypto ATMs banned as of August; all machines out by year-end
Minnesota is pairing its custody law with a clampdown on cash-based crypto access. Earlier this month, the state enacted Senate File 3868, which prohibits the installation and operation of cryptocurrency ATMs and kiosks statewide.
Key dates under SF 3868:
- August 1, 2026: No new crypto ATMs or kiosks may be installed.
- December 31, 2026: All existing machines must be removed.
The move directly affects an estimated 400 kiosks currently operating in the state. Users who rely on cash-to-crypto machines will have to shift to online platforms or to services offered by banks and credit unions that complete the 60-day notice process with regulators.
Fraud concerns and regulatory pressure drive policy change
State officials are responding to a documented rise in fraud tied to crypto kiosks. The Federal Bureau of Investigation reported 13,460 crypto-kiosk fraud complaints across the U.S. in 2025, with losses totaling $389 million, a 58% increase from the previous year.
Minnesota recorded 134 fraud complaints involving these machines between 2023 and 2025, with nearly $1 million in reported losses. Authorities see kiosks as a favored tool in scams targeting older adults and unbanked or underbanked populations using cash.
Similar moves are emerging elsewhere. In April, the Canadian government announced plans to ban crypto ATMs as part of a broader anti-fraud and anti-money laundering initiative.
Industry fallout: bitcoin depot bankruptcy underscores pressures
The tightening environment around crypto kiosks is already reshaping the industry. Bitcoin Depot, one of the largest operators of such machines, filed for Chapter 11 bankruptcy on May 18, 2026, and has since taken its network offline.
In its filing, the company pointed to falling transaction volumes and mounting state-level restrictions and bans, saying these conditions had made its business model unsustainable. Bitcoin Depot’s first-quarter revenue for 2026 declined 49.2% year over year, down $80.7 million versus the same period in 2025.
Two-track approach: closing kiosks while opening bank channels
By simultaneously approving bank custody and banning kiosks, Minnesota is drawing a clear line between acceptable and unacceptable channels for digital asset activity.
On one side, the state is:
- Encouraging the use of regulated, insured financial institutions.
- Requiring documented security, segregation of assets, and compliance oversight.
On the other, it is:
- Shutting down physical, cash-based access points that have been linked to fraud and compliance gaps.
The strategy steers individuals toward supervised environments under direct oversight of the Department of Commerce, and away from informal, lightly monitored venues.
What asset holders should watch as banks roll out services
As Minnesota banks and credit unions prepare to launch custody offerings ahead of the August 2026 start date, those holding digital assets will likely compare:
- Security protocols and technical safeguards.
- Fee structures for storage and related services.
- Insurance coverage and how far it extends to digital assets.
- The degree of segregation and reporting transparency on client holdings.
With kiosks disappearing by year-end 2026, the digital asset landscape in Minnesota is pivoting toward regulated financial firms as the primary local access point for custody and, potentially, related services.
As regulation tightens, learn how crypto trading basics can help you adapt and trade confidently in changing markets.
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