Banks are integrating cryptocurrency transactions into their own apps, while exchanges are retreating to the backend of the financial system

Written by: Xiao Bing, TechFlow

On August 14, Israel's largest bank, Bank Leumi, announced a partnership with Galaxy Digital, planning to allow 2.5 million retail customers to buy, sell, and hold BTC, ETH, and SOL directly within the bank's own Leumi Trade app. Galaxy will provide trading execution and custody backend, expected to launch in early 2027.

As banks begin to integrate crypto trading into their own apps, crypto exchanges are transitioning from "user-facing brands" to "pipes hidden behind banks."

Trading Happens in the Bank App, but the Bank Does Nothing

First, let's look at the division of labor in this partnership.

Bank Leumi is responsible for: customer relationships, KYC, compliance, bank accounts, funding channels, and most importantly—branding. Customers open Leumi Trade, see the bank's logo, and trust the financial institution that has existed for 120 years.

Galaxy is responsible for: trade matching (through the GalaxyOne Institutional platform), asset custody (through its subsidiary GK8), and liquidity access. Every buy and sell transaction by users is actually completed within Galaxy's system.

In this partnership, Bank Leumi plays a role closer to that of a licensed distribution channel rather than a trading service provider. The bank has not built its own trading engine, has not established a custody system, and has not connected to liquidity pools. What it does is wrap Galaxy's capabilities in its own shell and place them in the app that 2.5 million customers open daily.

For the bank, this is the most rational choice. The cost of building its own crypto trading infrastructure is high, the timeline is long, and the compliance risks are significant. By connecting to Galaxy, it essentially calls upon a complete set of regulated trading and custody capabilities via API, only needing to manage what it does best: customer relationships and funding channels.

Galaxy's 2026: From Trading Company to Financial Pipeline

Bank Leumi is not the only traditional financial institution that Galaxy has partnered with this year.

At the beginning of August, Bank of New York Mellon (BNY) announced a collaboration with Galaxy to integrate Galaxy's staking infrastructure into BNY's digital asset custody platform, allowing institutional clients to participate in PoS network staking without leaving BNY's custody framework. BNY manages $62.6 trillion in custody assets, making it the largest custodian bank in the world.

In June, Morgan Stanley's wealth management division chose Galaxy as its staking service provider, offering staking yields for qualified high-net-worth clients on BTC, ETH, and SOL. Galaxy is also the node operator for BlackRock's FETH Ethereum staking ETF.

With Bank Leumi added, Galaxy has secured three key nodes in the global financial system by the summer of 2026: the largest custodian bank, one of the largest wealth management platforms, and the entire retail crypto business of a leading regional bank. Galaxy's disclosed institutional contract pipeline has reached $30 billion.

When Mike Novogratz founded Galaxy in 2018, it was positioned as a crypto investment company, buying coins, providing market-making, and investing in projects. By 2026, Galaxy is transforming into a crypto infrastructure provider for traditional financial institutions. Trading, custody, staking, compliance—packaged and sold to banks and asset management companies, while it retreats to the background.

This transformation has a clear business logic: crypto trading aimed at retail users is a red ocean, with profit margins driven down by Coinbase, Robinhood, and various local exchanges. But infrastructure aimed at institutions is a blue ocean, where banks are willing to pay a premium for compliance, security, and integration capabilities, and once connected, the switching costs are extremely high.

Lessons from the Payment Industry

This evolutionary path is not the first time it has appeared in financial history.

Your credit card may bear the logo of China Merchants Bank or Chase, but every swipe transaction's clearing and settlement is completed by Visa or Mastercard in the background. Consumers recognize banks, but not the clearing networks. Banks hold customer relationships and deposits, while clearing networks possess transaction processing capabilities and global connectivity. Both parties take what they need.

Crypto trading is heading towards the same structure. Bank Leumi's customers buy Bitcoin in Leumi Trade without knowing or needing to know about Galaxy's existence. Just like when you use a China Merchants credit card to buy coffee, you don't think about Visa.

If this trend continues, the value distribution in the crypto industry will undergo a fundamental restructuring. Banks that control user relationships and funding channels will capture brand premiums and customer loyalty; infrastructure companies providing backend trading and custody capabilities (like Galaxy, Coinbase Prime, Fireblocks, etc.) will earn technology service fees, stable but with limited margins.

John D'Agostino, head of Coinbase's institutional business, mentioned a telling statement in April this year: banks' choices regarding crypto business are "buy, build, or rent." He predicts that most banks will choose "rent." Because the size of the crypto market is still only 3%-5% compared to the global stock and fixed income markets, banks have no incentive to build a complete set of infrastructure for it.

Coinbase's Dilemma

This trend presents a nuanced situation for Coinbase.

On one hand, Coinbase Prime is already the largest crypto institutional service platform in the world, providing trading, custody, and financing services to over 240 banks, brokerages, and fintech companies, with custody assets exceeding $350 billion. It is both an exchange and an infrastructure provider.

On the other hand, Coinbase also operates the largest retail crypto trading brand globally. When bank customers can directly buy Bitcoin in their own bank app, how many reasons do they have left to open Coinbase's app?

This is a classic channel conflict. If Coinbase fully assists banks in building crypto trading capabilities, it is helping banks encroach on its own retail user base. If it restricts its technology output to banks, pure infrastructure players like Galaxy, Fireblocks, and BitGo will fill the gap.

D'Agostino's response is: the crypto market is still in its early stages, and the overall pie is growing, allowing institutional and retail businesses to grow in parallel. This statement holds during market expansion periods. However, when penetration reaches a certain level and growth slows, competition between bank channels and self-operated retail will become inevitable.

Galaxy does not have this burden. It launched the GalaxyOne platform for individual investors at the end of 2025, but its scale is much smaller than Coinbase's retail business. Galaxy's core revenue increasingly relies on institutional infrastructure, allowing it to serve banks without hesitation, as the success of banks is its success.

A Quieter Crypto Industry

There is a detail in Bank Leumi's announcement: crypto trading will occur in a "dedicated secure area" within the Leumi Trade app.

This product design choice reveals a lot of information. For banks, crypto is just a new dish on the capital market service menu. It stands alongside stocks, bonds, and funds, constrained by the same compliance framework and settled using the same account system. No mnemonic phrases, no gas fees, no on-chain interactions.

If more banks follow Bank Leumi's path in the next five years, using Galaxy or Coinbase's backend to provide crypto trading in their own apps, the crypto industry will undergo a counterintuitive change: it will become quieter.

There will be no need to educate users on what wallets are, what private keys are, or what on-chain confirmations are. Banks will handle all of this for you. Users won't even need to know that the Bitcoin they buy is custodied through Galaxy's GK8 cold wallet. They only need to know that this is a service provided by the bank, regulated and as simple as buying a fund.

For practitioners, this is both a victory and a loss.

The victory lies in the fact that crypto assets have finally been embedded into the capillaries of mainstream finance, reaching ordinary depositors who would never download Coinbase or Binance. The loss is the brand recognition and user sovereignty narrative that the crypto industry prides itself on; when Bitcoin becomes just a button in a bank app, the vision of "trustless intermediaries" from Satoshi's white paper drifts further away from reality.

But the market never follows an idealistic script. Money flows to the path of least resistance. For 2.5 million Bank Leumi customers, clicking to buy Bitcoin in their trusted bank app is the path of least resistance.

Galaxy and its peers are laying the underground pipeline for this path.