The cryptocurrency market, valued at roughly $2 trillion, has birthed a niche yet crucial service sector: crypto custody. Bloomberg reports this market, currently worth about $300 million, is growing at an estimated 30% annually, catching the attention of traditional financial institutions.
Safeguarding digital assets comes at a premium. Hadley Stern, chief commercial officer for Solana custody tool Marinade, told Bloomberg that crypto custody can cost up to ten times more than protecting traditional assets like stocks and bonds. This price tag reflects the unique challenges of securing digital assets in a space notorious for attracting hackers and fraudsters.
Despite the high costs, major players like BNY Mellon, State Street, and Citigroup have shown interest in entering the crypto custody arena. However, their full-scale entry faces a significant hurdle: regulatory uncertainty.
The U.S. Securities and Exchange Commission’s SAB 121 rule makes it impractical for highly regulated financial firms to provide crypto custody services. Some banks have received exemptions, but many are in a holding pattern, awaiting potential regulatory changes.
The upcoming U.S. presidential election could be a turning point. Bloomberg notes that some overseas providers, like London-based Copper, are considering a renewed focus on the U.S. market depending on the election outcome.
Currently, crypto-native firms like Coinbase and BitGo dominate the market. These companies have built their services from the ground up to address the specific needs of digital asset storage and security.
Wall Street isn’t sitting idle, though. JPMorgan Chase has launched Onyx, a project facilitating blockchain payments between its clients. State Street has partnered with provider Taurus for tokenization and custody of digital asset services, positioning itself for future opportunities.
The crypto custody landscape has seen its share of controversy. Bloomberg mentions recent settlements by Robinhood Markets and Galois Capital with U.S. regulators over custody-related failings, highlighting the importance of qualified custody for institutional investors.
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