Cryptocurrency Custodians on the Rise, Ideal Way to Attract Institutional Investors
Cryptocurrency custodian is a financial establishment that safeguards one’s crypto holdings with applicable insurance. In particular, such financial services induce confidence in institutional investors, as it helps to minimize its associated risks and potential theft. Although the crypto market seems to have plummeted to an immediate low, the demand for such custodians still remain intact.
A recent report shared by Finance Magnates has explored how crypto custody services have taken form and the giants that have been considering its likes. The most recent investment firm that has been looking into crypto custodians is Goldman Sachs.
On Tuesday, August 7, a representative of Goldman Sachs shared that their decision for getting into the relatively new market stems from “client interest in various digital products […] At this point we have not reached a conclusion,” adding that they are currently exploring the possibilities.
Crypto Custodian Traits That Require Utmost Attention
So, what’s the big deal surrounding crypto custodians? Many investors and analysts believe that such a service should be considered the foundation of the crypto sphere and it will only help to strengthen it. Some leaders who hold this standpoint, include hedge fund manager, Stephen Cohen, who supposedly placed “bets on Autonomous Ventures”.
1. Custodian Size And Compliance
Crypto custodians first came into existence sometime 2017, however a growing problem that was and continues to come about is that of compliance. Finance Magnates noted that any hedge fund holding over $150 million in assets are required to be stored via a custodian.
In addressing the concern of compliance, the U.S Securities and Exchange Commission previously shared the importance of the 1940 Act, adding that it “safeguards [which] include standards regarding who may act as a custodian and when funds must verify their holdings.”
Size seems to influence the notion of compliance as well, as small crypto funds are less likely to follow set regulations. The time where computer scientist, Mike Belshe spoke to Wired, he noted that in February, nearly 24 hedge funds were not in compliance.
2. Crypto Custodian And Security
Security is another factor that many leaders believe needs to be emphasized when it comes to crypto custodians. For instance, the CEO of Binance, Changpeng Zhao shared that the idea that security is an important factor is the wrong way of perceiving it, but instead should be considered “paramount” for both its existence and continuation. He explicitly told Forbes that “security is the fundamental pillar for the industry to continue existing.”
3. Crypto Custodian And Institutional Investors
In recent times, the notion of new money entering the crypto market has been focused on and many believe introducing cryptocurrencies to institutional investors would be ideal. For instance, the CEO of Galaxy Digital, Mike Novogratz took to several events to express the need for new money to flow into the market, adding that a “herd of institutional investors” is essential. If his intuitions are accurate, then it is more likely that the number of crypto custodians are surely to rise.
Crypto Custodians To Secure About $20 Billion in Assets
As per Finance Magnates reporting, Kyle Samani from Multicoin Capital previously told Bloomberg that “there are a lot of investors where custodianship was the final barrier.” He however trusts that such a barrier is surely to dissolve in the course of a year, which “will unlock a big wave of capital.”
Newly Established Custody Services
On July 2018, crypto exchange, Coinbase announced that it will be offering its respective crypto custody service for businesses in both Europe and U.S, adding possible outreach towards the Asian market as well. Another firm, a tokenization ecosystem, Bankex also launched its custody service back in June 2018. These are only some of dozen that are certain to flourish, according to Finance Magnates.
Although there are a mix of firms, from startups to Wall Street firms, who either have plans to dive into the crypto sphere or have already done so, it’s investors who entered earlier on that made a lot of profits. Co-Founder of Science Inc., Greg Gilman told Wired that “you had to have guts and faith to do this 12 months ago. It didn’t require a lot of either to do this six months ago.”
As for firms who managed to dive in with a lot of faith, they include Kingdom Trust and Gemini, both of which offered custodian services as early as 2017 and 2016 respectively. The idea of establishing crypto custody services still remains new, hence time will only tell how competitive this sector will get. One thing seems obvious: that as more and more custody services come about, so will the amount of money.
What are your thoughts on the growing demand for crypto custody services? Do you think they will serve as the foundation of the crypto sphere?