One of the last major hurdles to the widespread institutional adoption of cryptocurrency is the issue of custody — where to securely store all those high-paying clients’ assets. Fortunately, several companies are currently working on a solution to this piece of the puzzle.
A Universal Question
Custody is a question that perhaps anyone who has owned crypto has considered — or failed to at their own peril. I.e., Where am I going to keep my Bitcoin (BTC) 00 — or other tokens —safe?
In the early days, some were happy enough to leave their crypto in the safe hands of the exchange where it was bought. Until a series of high profile hackings highlighted just how untrustworthy those hands may be.
The crypto community possesses online desktop and mobile wallets, hardware wallets, and even paper wallets, depending on how sensible/paranoid we are. Now imagine dealing with millions of dollars worth of someone else’s money.
Institutional investors are accustomed to having their assets safely stored or FDIC insured. For institutions holding assets of over $150 million dollars, use of a third party custodian is an SEC requirement. So for larger companies, self-custody (managing their own private keys) is not even an option.
Smaller retail and family offices may utilize offline cold-storage methods or even keep assets on an exchange. But there is a clear need for some entity to fill the role of secure, regulated custodian. Managing private keys in the way that Wall Street custodians manage traditional asset classes.
One of the companies aiming to fill that niche is BitGo. Yesterday BitGo became the first regulated service for storing digital assets when it received a state trust company charter from the South Dakota Division of Banking.
CEO and Co-founder, Mike Belshe said:
This is the missing piece for infrastructure — it’s a treacherous environment today… Hedge funds need it, family offices need it, they can’t participate in digital currency until they have a place to store it that’s regulated.
Aside from BitGo, there are several companies vying for a place at the custodial table. They include Coinbase, Gemini, Ledger and ItBit, who are all developing solutions. Nomura partnered with Ledger and Global Advisors to announce plans for a custody solution in May. Even Goldman Sachs recently announced plans for their entry into the market.
An influx of institutional investors could be the exact boost the current crypto-market needs. For the SEC to get on board and realize this vision, there really is no alternative to a regulated custodian service.
What are your thoughts on custodial services in the crypto landscape?
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