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Digital Asset Custody Peaks at $448 Billion
A recent investigation reveals that the crypto custody industry achieved an impressive value of $447.9 billion in 2022 despite the larger digital asset industry registering an all-time high of over $3 trillion the previous November.
The data was sourced from a comprehensive study conducted by consulting giant PricewaterhouseCoopers (PwC) and financial technology firm Aspen Digital. The detailed 39-page report was disclosed to the public in July.
Crypto Custody Providers Emerge
The findings of the study indicate that the number of custody service platforms stood at 120 by April 2023. These providers divide into two main types: standalone service providers and self-custody alternatives. Crypto staking, specifically following the Ethereum Merge, and the rise of nonfungible tokens (NFTs) and the metaverse, draw the attention of institutional investors, creating a significant impact on the market.
Security: The Primary Challenge
As per the shared study, the principal concern in the industry revolves around security, owing to insufficient governance, risk management, and controlling mechanisms. Sagas like the FTX debacle of 2022 validate these points:
“Firms are increasingly exploring self-custody solutions or reputable digital asset custodians to protect their assets rather than placing them with exchange platforms directly.”
Insurance Policies in Crypto Custody
Another hurdle for custody providers is insurance coverage. There’s a lack of compensation should any loss arise due to negligence in self-custody solutions, which don't come with insurance provisions. As per inputs from family offices, a solid insurance policy forms part of a key decision-making criterion when choosing digital asset custodians.
The research illustrates a strategy for selecting a custody service provider. The process comprises five essential steps, including evaluating the market, creating a ranking model, conducting performance evaluation, among other initial measures.
In a noteworthy development, Canada’s financial regulator issued recommendations for fund managers to abide by legal stipulations for investment funds with crypto holdings. The authority has also expressed confidence in the regulated crypto futures market for its role in encouraging better price discovery.
