The cryptocurrency market, valued at around $2 trillion, has spawned a niche but crucial service sector: cryptocurrency custody. Bloomberg reports that the market, currently worth around $300 million, is growing at an estimated 30% annually, attracting the attention of traditional financial institutions.
Protecting digital assets is a major challenge. Hadley Stern, chief commercial officer of Solana’s custody tool Marinade, told Bloomberg that crypto custody can cost up to 10 times more than protecting traditional assets like stocks and bonds. The price tag reflects the unique challenges of securing digital assets in a space known for attracting hackers and fraudsters.
Despite the high costs, major players like BNY Mellon, State Street, and Citigroup have expressed interest in entering the cryptocurrency custody space. However, their large-scale entry faces a major obstacle: regulatory uncertainty.
The U.S. Securities and Exchange Commission’s SAB 121 rule makes it impossible for highly regulated financial firms to provide cryptocurrency custody services. Some banks have been granted exemptions, but many are awaiting possible regulatory changes.
The upcoming U.S. presidential election could mark a turning point. Bloomberg notes that some foreign suppliers, such as London-based Copper, are considering shifting their focus back to the U.S. market depending on the outcome of the election.
Currently, crypto-native companies like Coinbase and BitGo dominate the market. These companies have designed their services from the ground up to meet the specific needs of storing and securing digital assets.
Wall Street isn’t sitting idly by, though. JPMorgan Chase launched Onyx, a project that facilitates blockchain payments between its clients. State Street partnered with provider Taurus for tokenization and custody of digital asset services, positioning itself for future opportunities.
The cryptocurrency custody industry has seen its share of controversies. Bloomberg reports on Robinhood Markets and Galois Capital’s recent settlements with U.S. regulators over custody-related breaches, highlighting the importance of qualified custody for institutional investors.
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