The crypto space is always synonymous with familiar mantras like, ‘Don’t invest more than you can afford to lose’, ‘We’re in the early days of the Internet’ and ‘Adoption is coming.’
Well, these are valid points. However, adoption is being held back by lack of regulation and typical financial services, keeping cryptocurrency on the sidelines of the global financial markets as a fringe space, risky investments with no guarantees and no oversight or protective measures.
Kyle Samani, a hedge fund manager at Multicoin Capital, believes that the barriers preventing whales and institutional investors from coming on board are about to end. In a phone interview with Bloomberg, Samani was optimistic that once the custodianship issues which are currently being addressed by various industry players are solved, a big wave of capital is coming to the nascent industry. He explained:
There are a lot of investors where custodianship was the final barrier. Over the next year, the market will come to recognize that custodianship is a solved problem. This will unlock a big wave of capital.
Samani is part of a group that has been testing Coinbase’s new custody service, which is just one of many that have been launched in the ecosystem. Coinbase is optimistic of acquiring approvals in the near future to serve clients that are yearning for qualified custodians, but that adhere to the stringent measures set by the US authorities that guard assets.
Additionally, global financial services group Nomura recently launched institutional-grade custody services for cryptocurrency assets, and earlier this year BitGo acquired Kingdom Trust, a $12 billion asset manager to act as custodian for their assets – with talks of BitGo even becoming an independent custodian in future.
Although to many crypto worshippers these services may be centralized – the same phenomenon majority turn to cryptos to avoid – the services are necessary to attract institutions to the crypto space.
Attracting the Whales
Regulated custody offerings will bring the much-needed institutional investors to the crypto market, which will open up huge positions in the stock market without the need to take personal responsibility over the custody of the funds.
This will also allow hedge funds to give their traders millions of dollars without risking them flying to the Bahamas with it, and it helps prevent outside theft and accidental losses as well, essentially acting as an insurance policy for the billions being traded every day.
At the moment, institutions wishing to send their traders into the crypto market have to accept major risks in doing so. The nature of crypto products makes them hard to track, let alone return if sent to the wrong addresses.
Majority of the startups have indicated that they are engaging the relevant authorities like Securities and Exchange Commission and Financial Industry Regulatory Authority, and are waiting for a response.
Do you think the introduction of regulated crypto custody services will attract institutional investors in the crypto space? Let us know in the comments section.