Custody services are not the most compelling corner of the crypto ecosystem, but 21st century solutions are important for storing and protecting digital assets if cryptocurrency is to be widely adopted.
For that reason, Cowen Inc. ‘S recent announcement that the 103-year-old United States Investment Bank Wants to Have Crypto It is notable on behalf of asset managers and hedge funds, especially when combined with similar statements from traditional bank giants such as Bank of New York Mellon and Deutsche Bank earlier this year.
Is it too early to speak of it as a movement? “This is purely a trend,” Rafael Polansky, managing director of Boers Stuttgart Digital Ventures GmbH, told CoinTelegraph.
Traditional bank giants like Wells Fargo – who also announced it would be Start offering crypto services to your rich investors – Being incorporated into the business by its customers who are eager to increase their crypto and token activities. “Those customers are not yet ready to trust the leading fintech firms that have a three-digit million sum,” explained Polansky, who wants a reliable and trustworthy partner they’ve known for decades, and that’s right now There are also traditional banks. “
“Yes More [traditional] Banks will offer custody services, ”predicted Michael Goffman, assistant professor of finance at the University of Rochester. It’s like building a house, where “custody is the foundation,” he told Cointegraph. Most users are hardly aware of the detention function, but it is important if the house is to be tolerated.
Matthias von Hoff, CEO of TEN31 Fintech Bank, told Cointechlag: “Jurisdictions with a solid financial regulatory regime are beginning to appreciate the importance of providing a sound regulatory framework for crypto custodies in general.” He also hopes that more traditional banks will enter custody.
A door opener?
Legacy banks’ interest in crypto custody may seem surprising at first glance. The fees are not attractive, after all; For example, the coinbase fees of coinbase are about 50 basis points on an annual basis. “It won’t make them [i.e., the banks] A lot of money, ”Goffman observed. But banks may see this as a kind of loss leader, enabling institutions to sell additional – and more profitable – services to new custodial customers, such as crypto trading.
Noted von Hoff, so far many providers are offering almost free services, while crypto custodi is “a completely logical ‘door opener’ for a wide range of cross-selling opportunities,” adding: “It offers free checking Is like doing. Accounts for banking customers. You lose money at first, but you have a customer who can offer you all kinds of financial products. “
In addition, banks are definitely keeping an eye on Fidelity Investments, the mutual fund colossus that pioneered institutional crypto custody in 2019 and, in October, expanded its digital asset coverage in Asia. Its Bitcoin (B T c) The custody business has been “incredibly successful”, Fidelity CEO Abigail Johnson Told Baron in December, adding:
“If you had asked me in the beginning if we or anyone was going to prioritize bitcoin’s custody, I would have said, ‘Of course not, I mean, it’s the opposite of what it is,’ but the reality is that Is that you need it because if you’re a person who employs an advisor and you want to create an estate plan, you really need someone to maintain your bitcoin. “
Will banks replace fintech?
With the exception of Fidelity, an external, crypto custodial business actually began to flourish in 2019, led by fintech firms. But now, with more established banks entering the arena, its center of gravity may shift.
Sean Stein Smith, assistant professor of economics and business at Lehman, said, “I wouldn’t say that the first fintech interest in the sector would be removed forever by traditional financial institutions, but by entering this space, competition for customers is certain.” Will increase in form. ” The college told Cointegraph. He said that it is possible that some demographics may actually prefer to deal with fintech rather than traditional commercial banks.
There should be room for partnerships between banks and fintech, Polansky said. “We expect a number of strategic steps in a market where traditional banks will invest in crypto custodians instead of creating their own solutions.”
When it comes to adopting new technologies, banks are generally not at the forefront, so it is not surprising to see that most banks have left this playground for fintech firms. Now it looks like they are starting to catch up. “
The nature of crypto custody can also change soon, especially as the crypto industry moves from proof-of-work to proof-of-stake transaction validation protocols and as staking becomes more common, Goffman told Cointegraph. If a user bets a cryptocurrency, such as Ether (ETH), Which helps the network validate the blocks on its protocol, can expect a return on stakeholder investment – eg, 6.7% Over a period of 365 days.
But who will track, secure and document all those additional funds? Goffman predicted: “In the future, all have to be provided hostages,” but “not every patron will be able to do so.” It may become the province of small crypto-detention specialty firms.
At the same time, events are advancing rapidly, and Polanski expects the crypto custodial business to be largely commoditized within the next three to four years. “The speed with which various companies are building shared infrastructure is amazing.” Apart from all those entering the new market, the rules could also shape future custody business, he told CoinTelegraph, adding:
“Combine those influences and we’ll see a network of big players with similar pricing sharing the market and make it harder for new competitors to enter.”
This should be a plus for crypto users who will get accessible, affordable services. In addition, Polansky predicted “interoperability of patrons” to allow customers to “more easily transfer tokens and cryptocurrencies between ecosystems”.
What about Custody Services for Everyday Investors?
Stein Smith said, recent announcements have focused on crypto custodial solutions, not for individual investors, but for institutions, but this is not so surprising, as institutional players and private banking customers have more assets to deploy. is. , It is logical to give services to the most valuable customers first. ”
“Retail customers don’t need it,” Goffman said. They can write their personal key on a piece of paper and keep it in a safe deposit box. It is also not required for tax filing. But for institutional investors, it is a different story. In fact, in the US, qualified investors who own assets of $ 150,000 or more must place them under the control of a “qualified guardian”.
It makes some sense, Goffman continued. You really don’t want the CEO of the company to hold the private key to the firm’s $ 1 billion BTC investment. Even if the CEO is not an escapee to the Cayman Islands with a private key, it is better to keep it with an established financial custodian to secure it.
Crypto in Retirement Fund?
Overall, the fact that financial giants such as Fidelity, BNY, Deutsche Bank, Northern Trust, DBS Bank and others want to offer custody for digital assets can be a milestone event for the crypto world, and One can expect that even retirement funds can hold crypto assets soon.
“The inclusion of bitcoin and crypto in retirement planning is actually already underway through the use of self-directed IRAs,” Stein Smith told Coinclague. “With the increasing interest and integration of crypto in traditional custody and other financial services, it makes logical sense that bitcoin and other cryptos would become an integral part of the retirement planning process.”
Custody is a big deal, Goffman said, as the basis for the cryptocurrency building, and even though the detention charge is relatively low, “1% of $ 1 trillion is still a lot of money.” Meanwhile, non-profit organizations, pension funds and other institutional investors should have secure and reliable custodial services if they are going to invest in cryptocurrency.
“A big reason is that institutional investors have so far overcome cryptocurrency,” said Campbell Harvey of Duke University. Told In April Cointegraph said: “They had no mechanism to store private keys. They did not want to risk custody.” But now many solutions are visible at hand.