HIGHLIGHTS
- Opimas finds that a number of institutional participants and even some large cryptocurrency exchanges rely on subpar custody approaches.
- In total, about 22% of institutional cryptocurrency holdings are safeguarded in these relatively risky manners.
- Institutional Crypto Brokerage and Custody Market to Quadruple by 2026.
United States, May 10, 2021 /AlexaBlockchain/ – US-based management consultancy firm Opimas warns that subpar crypto custody approaches is putting Bitcoin worth over US$190 billion at risk.
In a report titled “Crypto Custody – No More Excuses”, Opimas finds that a number of institutional participants and even some large cryptocurrency exchanges rely on subpar custody approaches.
Cryptocurrency Safekeeping: Why does it matter?
Cryptocurrency transactions are irreversible and anyone with full access to a wallet’s private key controls the cryptocurrencies that reside within it.
Cryptocurrency Safekeeping: What are the latest technologies and best practices?
The report finds that a number of companies have emerged to address the problems and challenges associated with crypto custody and safekeeping. There are now several reputable cryptocurrency custody-enabling technology providers and institutional-grade cryptocurrency custodians. Yet no custody solution is equal – there is still no best practice when it comes to security and governance relating to private keys. Some providers may rely on time-tested Hardware Security Modules (HSMs), while others use a newer technology known as Multi-Party Computation (MPC).
Evolution of Crypto Custody Regulations and its impact on Crypto Custody Services
Regulations surrounding institutions’ ability to store cryptocurrency have become clearer (and in some cases more favorable) in numerous jurisdictions. Notably, the Office of the Comptroller of the Currency (OCC) ruling in the US has allowed banks to store cryptocurrencies for their customers. This regulatory clarity has led a number of financial institutions around the world to provide trading and custody for digital assets. With the advances in brokerage and custody solutions, Opimas expects institutional cryptocurrency holdings to grow from 20% of the cryptocurrency market cap to over 50% by 2026.
22% of institutional digital asset holdings are safeguarded in risky manners
Many of even the largest holders of Bitcoin and other digital assets continue to rely on storage devices meant for individual investors. Although some of these self-custody devices and wallets are secure and reputable, the operational risk posed by this approach is significant for institutional investors. Furthermore, a chunk of institutionals’ cryptocurrency holdings sit in hot wallets on exchanges. In total, about 22% of institutional cryptocurrency holdings are safeguarded in these relatively risky manners.
Institutional Crypto Brokerage and Custody Market to Quadruple by 2026
Some cryptocurrency custodians have followed in the footsteps of traditional capital markets by adding prime brokerage services to their offerings, including trading and settlement, lending, margin finance, staking, reporting, and capital introduction services. Opimas estimates that the current annual revenues generated by the institutional crypto brokerage and custody market are roughly US$2 billion and will grow to nearly US$8 billion by 2026 – a sizeable portion of this coming from brokerage services.