Keeping an eye on digital asset custody

While traditional custodians are holding off from offering digital asset services, we take a look at some of the other custody and lending initiatives going on in the crypto world this week.

Here at Global Custodian we receive a lot of misdirected news about child custody cases and people being taken into custody, usually in a forgivable case of mistaken identity. We appreciate custody means different things depending on the context.

When it comes to digital asset custody, we spent a long time also hitting the delete button on pitches we deemed to be aimed far more at retail investors than our institutional audience. Despite the notable ascent of Bitcoin and its crypto counterparts at the end of 2017, the topic still didn’t seem to be one of interest for the securities services industry and traditional buy-side investors at the time.

However, we believe in following the sentiment of our readership and there appears to be a growing – albeit tentative – interest from securities services providers, hedge funds and asset owners alike in digital assets. In a very non-committal way, the traditional capital markets are taking notice and we feel obliged to provide updates on the institutional crypto custody scene as it evolves.

Given that I’ve personally written five stories about the Central Securities Depository Regulation (CSDR) already this week, seeing the news that KPMG had found that $9.8 billion in digital assets had been stolen since 2017 seemed like a nice change of pace. This is most definitely a custody issue.

In an interview with Bloomberg, the author of the report stated that institutional investors will not risk owning cryptocurrencies if they can’t guarantee safeguarding in the way their traditional assets are.

While he goes on to suggest there is an opportunity for custodian banks here, it’s not quite as simple as that. We wrote quite comprehensively about BNY Mellon and State Street’s stance on digital asset custody recently, which you can read here. In summary, they are monitoring the situation but without regulatory, legal and risk frameworks, their hands remain tied at present.

Developments are taking place elsewhere though, which is really the purpose of this piece – to give you an overview of what’s happening outside of the traditional providers.

The ones of most interest to us have been those gaining traction among institutional investors, or the custody providers run by securities services industry veterans.

This week, Onchain Custodian (ONC), the Sequoia-backed digital assets custody service provider headed up by former SWIFT securities services executive, Alexander Kech, announced it has just released the next version of its SAFE platform, integrating cryptography services on an infrastructure securely hosted by IBM. The service is building up a list of institutional clients in the Asia Pacific region and the latest development is another step in providing secure custody of digital assets.

Meanwhile, for BNY Mellon’s former head of emerging business & technology team and Blockchain Lead, Alex Batlin, his new company Trustology launched  a new solution for traders and crypto funds, an Exchange Credentials Wallet. The all-in-one solution, provides advanced controls for managing on-exchange assets to help meet emerging investor and regulatory demands on funds who are expected to secure assets both on-chain, as well as on-exchange. 

“Crypto institutionalisation has arrived,” said Batlin. “Regulators, such as Hong Kong’s Securities and Futures Commission who last year published the Virtual Asset Guidelines, have made it clear that investment managers must safeguard assets on-chains and on-exchanges.

“Investors going forward will allocate significant assets to managers who can demonstrate not just superior returns, but exceptional execution, risk management, and cost-control. We built our institutional-grade, insured, TrustVault platform with these expectations in mind.”

Finally, digital asset custodian, BitGo has followed up its big launch of services in Germany and Switzerland in February, with the introduction of a new lending service.

“Our goal was to build a lending business that is similar to lending businesses in the traditional financial markets,” said Nick Carmi, head of financial services at BitGo. “We are not interested in a high-volume, low-margin business; we are building deep relationships with our clients to drive value for them and to create a long term, sustainable business.”

So, while the big guns aren’t committing to any official services, former executives of some of the biggest securities services providers are making waves across the digital asset industry in their new capacities.