There’s a running joke in crypto that goes, “just wait till the institutional money comes in, that's when crypto will really take off”. While this hasn’t happened yet, the foundations are being built right now, in the middle of what could be a recession worse than 2008! The foundation involves regulatory elements which I discussed in my last post, but it also includes a technical side as well: custody services.
In traditional finance, assets are stored by a central entity like a bank or a broker. The sector is mature and highly regulated, so institutional investors trust them to store their financial assets like stocks, bonds, treasures, etc. In this system, custody is relatively straightforward and relatively does not require a high degree of technical complexity.
In digital assets, custody is more technically complex, and banks are not technology companies (yet). The main difference with digital assets is that investors can self-custody their assets. Theoretically, tech-savvy institutional investors can self-custody their digital assets themselves. However, other investors either don’t have the technical know-how or simply don’t want to take on the risk of self-custody and would rather it be managed by a third party. Both are very legitimate and reasonable reasons, not everyone wants to be their own bank. This is why crypto custody solutions for institutional investors are a game changer.
In the past few months, the following giant traditional finance firms launched or expanded their crypto custody services for digital assets: Nasdaq (the world’s second-largest stock exchange), Fidelity (one of the largest brokerage firms in the world), BlackRock (the largest asset manager in the world), and Nomura and Standard Chartered (two of the biggest investment banks in the world) and the list goes on. Some are developing custody services in-house, and some are partnering with cryptocurrency exchanges to use their technical infrastructure.
Both the regulatory and technical foundations are being built for institutions to make serious allocations to digital assets in the near future. It's a question of when not if.