In the end of 2017 as well as the first half of 2018, the cryptocurrency sector has seen an increased emphasis on both regulatory best practices, and the importance of crypto custodianship. The issue of crypto custodianship ultimately caught mainstream attention following a blog post by Coinbase CEO Brian Armstrong last year. “By some estimates there is $10B of institutional money waiting on the sidelines to invest in digital currency today,” Armstrong said. “When we speak with these institutions, they tell us the number one thing preventing them getting started is the existence of a digital asset custodian that they can trust to store client funds securely.”
Major technology platforms and mainstream financial institutions alike have begun to take note and capitalize on this major opportunity. Let’s take a look at some of the major players.
Coinbase Launches Coinbase Custody
Coinbase announced the launch of Coinbase Custody in late 2017, and announced that it was officially open for business in July 2018. With the mission to make digital currency investment accessible to every eligible financial institution and hedge fund in the world, Coinbase Custody combines its cold-storage solution, comprehensive phone support and dedicated account representatives, insurance (in some cases), and more in order to a be a trusted solution for institutional investors.
“The next step to accelerating the world’s adoption of digital currencies is to unlock the institutional money preparing to enter the space,” Armstrong said, and with Coinbase Custody’s robust list of offerings, it looks as if it is in the process of doing just that.
Goldman Sachs Throws its Hat into the Crypto Custody Game
Sources from Goldman Sachs have revealed that the bank is seriously considering a custodial service for cryptocurrency investment funds. “In response to client interest in various digital products we are exploring how best to serve them in this space. At this point, we have not reached a conclusion on the scope of our digital asset offering,” a spokesperson at Goldman Sachs told Bloomberg.
The bank, which announced the launch of a Bitcoin trading platform earlier this year, appears to be warming up to Bitcoin, especially given that David Solomon will assume the role of CEO at the end of September. Known for expressing a more positive attitude towards crypto than some other mainstream finance leaders, Solomon has said, in regards to crypto, that the bank must “evolve its business and “adapt to the environment.”
While Goldman Sachs’ plans to launch a custodial service are still in the works, Solomon’s, tech-savvy and forward-thinking approach indicates that such an initiative is likely to launch in the near future.
CBOE’s VanEck SolidX Bitcoin ETF Application Offers Custodianship and Comprehensive Insurance Plan
In late June, the CBOE filed an application with the SEC to open the world’s first Bitcoin ETF. While the SEC has recently rejected a string of Bitcoin ETF applications, many are optimistic that CBOE’s application will be accepted, as it addresses many of the current pain points in the marketplace surrounding custodianship and insurance. SolidX would handle custody of Bitcoin using a cold storage solution, and the ETF would also offer a comprehensive insurance policy that “will carry limits of $25 million in primary coverage and $100 million in excess coverage, with the ability to increase coverage depending on the value of the bitcoins held by the trust.” With such extensive safeguards set in place, many believe that the CBOE application should be accepted. In the event that it does, it seems very likely that massive increase of institutional investors will be drawn to the space.
“I believe security is the fundamental pillar for the industry to continue existing. It’s paramount for crypto and blockchain’s survival,” Binance CEO ChangPeng Zhao said in an interview with Forbes this year. Ultimately, after reports of hacks and scams in the crypto sector, it seems like a natural progression for there to be an increased emphasis on accountability and security in the space. Offering crypto custodianship appears to be a necessary response.
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