2018-9-17 16:19 |
The lack of reputable custody solutions has kept large investors away from the cryptocurrency market. Custody offers security that the volatile crypto market is unable to provide to investors. Two of the most prominent US exchanges, Coinbase and Gemini, have already announced their custodial services to help institutional investors jump into the crypto space.
Now another company, called BitGo, recently received a state trust charter from the South Dakota Division of Banking to provide custody services. Bernstein analysts now predict that handling security issues with Bitcoin could be a cash cow for these crypto entities.
Bearish Market Isn’t a ProblemCryptocurrencies have been going through a long and disappointing bear phase since the beginning of this year. After a short rise in the price of Bitcoin over the $7,000 mark, it has stayed below it for most of the year, adding to investors’ concerns. However, when it comes to large crypto entities and institutional investors, the issue doesn’t lie in the prices. These entities intend to create an infrastructure that could help crypto adoption on a broader scale.
Institutional investors have “big money,” and the crypto space would happily handle an influx from these entities. The only issue here is security. Institutional investors typically invest their money in FDIC-insured, safer assets. Monica Summerville, a senior analyst at financial technology specialist TABB Group, sums up the investors’ problems. She said:
“Institutional investors are very interested in finding a solution, but they haven’t seen one that they think is perfect for various reasons. They still self-custody, and manage all their own keys.”
Hedge funds and other sizeable investors can’t handle millions of dollars’ worth of assets on a secure device for cold storage, nor can they trust an exchange to manage their money. They need a stronger support system, partly because the Securities and Exchange Commission mandates private funds to use a third party to hold funds over $150 million.
Crypto Has Security and Custody IssuesCustodians in the crypto sector will work like typical Wall Street custodians, helping to create a safe environment for their clients’ money to thrive. BitGo, which received a state trust company charter on Thursday, Sept. 13, is hoping that it can solve this problem. Talking to CNBC, co-founder and CEO of BitGo Mike Belshe said:
“This is the missing piece for infrastructure — it’s a treacherous environment today. Hedge funds need it; family offices need it, they can’t participate in digital currency until they have a place to store it that’s regulated.”
As the company opens up to regulatory scrutiny, it helps customers feel safe about their money. The company will have to follow the know-your-customer and anti-money laundering guidelines and also undertake regular financial audits, along with monthly financial disclosures. The company will eventually seek a broker-dealer status.
Sanford C. Bernstein suggests that reputable custody of cryptocurrencies will help in bringing institutional money to the crypto market, which could be a moneymaker. Christian Bolu, an analyst at Bernstein, commented in a note to clients:
“As the crypto-asset class seasons and institutional demand builds, there are a plethora of opportunities for traditional firms to engage in the ecosystem. These include the provision of custodial and asset management services as well as traditional brokerage functions like market-making.”
Some established companies are also considering custodial solutions. Coinbase and Gemini have already announced their plans for this service. ItBit and Ledger will also follow suit. Even banks like Goldman Sachs in the US and Nomura in Japan want a piece of the pie.
Bitcoin’s Security Woes Could Mint Money for Top Crypto Entities was originally found on [blokt] - Blockchain, Bitcoin & Cryptocurrency News.
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