As investors increasingly incorporate digital assets into their portfolios, the crypto custody landscape continues to grow and mature. As of late-2021, around US$230 billion worth of digital assets, or about 9% of the total US$2.5 trillion cryptocurrency market, were being stored on the technology solutions of eight crypto custodians, separate research by The Block Research and Blockdata found.
Coinbase stood as a leader in the space with some US$100 billion worth of custodial assets, the analyses found. Coinbase, a cryptocurrency trading platform, entered the institutional crypto custody business in 2018 and has since embarked on an acquisition spree, snapping up crypto wallet and asset holder Xapo’s institutional businesses, as well as custody technology firm Unbound Security more recently.
Last year, Coinbase signed Facebook as a new client, a partnership that will see the company act as Facebook’s custody partner for the pilot of digital wallet Novi.
After Coinbase, the other top crypto custody providers identified were BitGo (US$64 billion as of November 2021), Gemini (US$30 billion as of July 2021), Kingdom Trust (US$12 billion as of May 2021), Matrixport (US$10 billion as of October 2021), NYDIG (US$7 billion as of May 2021), Bitcoin Suisse (US$6.5 billion as of December 2021), and Hex Trust (US$1 billion as of March 2021).
With cryptocurrencies gaining significant traction over the past year or so, the custody business has evolved into a rich and dynamic market that now counts various options and participants.
Third party custodians like Coinbase and Gemini store digital assets on behalf of customers using clearly defined features and controls to provide certainty over the safekeeping of the asset. Typically, these solutions are designed for institutional investors, and will therefore implement institutional grade security and insurance.
Meanwhile, companies like Fireblocks and Ledger provide computer software and hardware solutions that enable their customers to establish custody of their own assets. Crypto unicorn Fireblocks, the creator of the MPC-CMP open source protocol, offers advanced custody technology solution, tokenization and settlement network services, serving banking institutions including BNY Mellon in the US and Bankhaus von der Heydt in Germany. According to Blockdata, Fireblocks had US$38 billion worth of custodied assets, as of November 2021.
Ledger, another crypto unicorn, provides the Ledger Fault platform, which allows custodians, exchanges, crypto banks and professional investors to store and manage their private keys securely and flexibly. According to Blockdata, Ledger had US$10 billion worth of custodied assets, as of November 2021.
In addition to these pure crypto players, a growing number of traditional financial institutions are also getting into the crypto custody business. Just last month, BBVA’s Swiss franchise announced that it had expanded its crypto custody and trading service with the addition of ether. BBVA Switzerland opened bitcoin trading services to private banking clients in June 2021.
In Switzerland, Julius Baer, Maerki Baumann and Swissquote are other private banks that have also started offering crypto custody services, competing against digital asset specialists like Custodigit, Metaco, SEBA Bank, Sygnum Bank and Taurus.
This burgeoning sector is growing on the back of rising interest in cryptocurrencies from institutional investors. A study by German derivatives exchange Eurex released in December 2021 found that the majority of surveyed institutions now consider cryptocurrencies as an asset class of their own (77%) and believe that they should be part of a diversified portfolio (60%). 59% of respondents indicated having a positive perception of digital assets, viewing cryptocurrencies as an innovative technology play (69%).
However, while openness to digital assets is rising, adoption of trading and investing in cryptocurrencies amongst financial institutions is still at an early stage with only a minority of respondents indicating being active in the new asset class.
