Registered custodial services are common in traditional investment institutions, they have been on the rise in the digital asset sphere, including for cryptocurrencies.
Coinbase which is the leading United States crypto exchange and wallet provider launched its custody services. The institution claimed that it was seeking to address what it considers to be the “number one” concern of institutional investors, namely, security.
Ledger, a crypto hardware wallet producer partnered with a Hong Kong trust company, Legacy Trust, to offer insured cryptocurrency custody services. Also, there are more regulated financial institutions that have also opened digital custodial services. These are, Swiss private bank Vontobel, Kingdom Trust, Germany’s second-largest stock exchange Borse Stuttgart, Gemini cryptocurrency exchange, ItBit is a New York State Trust Company regulated by the New York State of Financial Services and major investment management company Fidelity.
What are crypto custody services?
Most of the private investors typically store their crypto in an exchange wallet, an offline hardware wallet or an online digital wallet. For institutional investors, these storage options are too risky for them and they should ensure the safety of the crypto assets.
Insured cryptocurrency custody services are third-party providers of storage and security facilities with the main purpose of safeguarding investor assets.
Significance of the custodial services
- There is risk reduction especially for the institutional Investments because of the large amounts involved. The uninsured online storage, such as exchange and other digital wallets, pose too much of a risk for institutional investors. Some investors tend to forget passwords, therefore, putting assets stored in offline options “cold” such as Trezor and Ledger.
- Regulatory compliance is key since the funds stored by the investor will move to a specialized custodian. In addition, should anything go wrong the funds will be insured? Regulatory bodies such as the US Securities Exchange Commission (SEC), the Monetary Authority of Singapore (MAS) and the United Kingdom’s Financial Conduct Authority (FCA) require institutional investors to secure their clients’ funds with a regulated custodian.
An investments analyst at Invictus Capital emphasized on the importance of insured custody services for regulatory compliance as:
“One of the most important regulatory requirements is sufficient custody solutions. The topic has been a very prominent talking point by the SEC in regards to Bitcoin ETF applications.
Gemini launches institutional-grade crypto custody solution
Winklevoss-owned Gemini Trust Company launched the institutional crypto custody solution to security issues and regulatory compliance. Since it’s already a New York trust company and a Qualified Custodian chartered by the New York State Department of Financial Services with a SOC 2 Type 1 compliant certification and currently undergoing a Type 2 examination gives it an upper hand.
“Institutional investors have been demonstrating a clear and increasing demand for crypto but have been hesitant due to regulatory and security concerns,” claimed Gemini’s Managing Director of operations.
Gemini is designed to meet the complex and high-stakes needs of modern financial institutions. It supports 18 cryptocurrencies; Bitcoin, Bitcoin Cash, Ether, Litecoin, Zcash, and the following ERC-20 tokens: 0x (ZRX), Augur (REP), Basic Attention (BAT), Bread (BRD), Dai (DAI), Decentraland (MANA), Enjin (ENJ), Flexacoin (FXC), Gemini dollar (GUSD), Kyber Network (KNC), Loom Network (LOOM), Maker (MKR), and OmiseGo (OMG). Custody will be increasing the number of cryptos soon.
Furthermore, it stores user crypto offline using hardware security modules (HSMs), multi-signature technology, and geographical distribution, access-controlled facilities.
Note: Users can instantly trade their crypto in custody on the Gemini exchange without waiting for it to be transferred out of cold storage.
A new interface allows users to check balances, download account statements, initiate withdrawals and grant auditors view-only access to confirm balances, transactions and, general activity.
Tyler Winklevoss, CEO of Gemini, has reiterated the importance of secure and compliant solutions for the digital asset industry:
“From day one, Gemini recognized the need for a world-class custody solution that is secure, compliant, and easy to use for individuals and institutions around the world.
“We are thrilled to continue our security-first tradition by providing our customers with Gemini Custody, an expanded offering of our state-of-the-art custody solution.”
The infrastructure for digital assets is key for an institutional investor in terms of crypto security and regulatory purposes.