Institutional Crypto Custody: How Banks Host Digital Assets

Major financial institutions are getting involved in digital assets by investing capital, time and effort in custody technology solutions.< /p> Analysis

Until 2020, most crypto market actions were largely driven by retailer enthusiasm. It was only around August 2020 that institutions began to participate significantly in this asset class. As the United States Federal Reserve has released trillions of dollars of liquidity into the market during the COVID-19 pandemic, retail and institutional investors have jumped on the cryptocurrency bandwagon.

While crypto loyalists claim large-scale institutional adoption over the past two years, the entire asset class is only around $1 trillion. This is quite small compared to the gold market of $11 trillion and the bond market of over $100 trillion. There is still a long way to go for institutional adoption of crypto and blockchain-based digital assets.

A quick look at Coinbase trading volumes below shows the rise of institutional capital in crypto. But, it is also clear that the institutional numbers are quite modest compared to other asset classes.

Some institutions, in particular Top tier banks and fintech companies have begun to build capacity to offer digital asset products and services to their customers. Indeed, banks and fintech firms are beginning to view cryptographic, non-fungible (NFT) tokens and other digital assets as a systemically important asset class. Not offering these products and services to their customers would be leaving a lot of money on the table.

These clients that banks serve range from hedge funds, asset managers, family offices, corporates, small and medium enterprises, to retail clients. However, it is easier for banks to serve their institutional clients first, as they would have to jump through less onerous regulatory hurdles than when serving a...