Crypto Custody Unleashed: A Guide to Fortifying Digital Assets in 2024
December 12, 2023
With the highly anticipated Bitcoin ETF potentially receiving SEC approval in early 2024, the floodgates may soon open for an immense wave of institutional capital to enter the cryptocurrency market. As major funds and institutions gain exposure to digital assets, robust custody solutions become paramount. Without secure storage, the predicted $14 billion influx into crypto would face substantial risks from hackers, technical failures, and operational errors.
As the Bitcoin ETF green light shines on crypto, institutional crypto custody providers stand out as a critical backbone enabling broader institutional participation without compromising security, convenience, or regulatory compliance. The market capitalization for cryptocurrency is in trillions, optimizing digital asset storage takes on new urgency. In this piece, we discuss the landscape of digital assets, types of custody solutions for institutions, and how to safeguard your crypto in preparation for 2024.
Key Takeaways
With the potential Bitcoin ETF approval in 2024, a huge influx of institutional capital is expected to enter the crypto market, making robust custody solutions for secure digital asset storage critically important.
The digital asset market has expanded beyond just cryptocurrencies to include stablecoins, tokenized real-world assets, and central bank digital currencies. This market is projected for massive growth as tokenization reshapes finance.
3 types of custody solutions for institutions are self-custody, where they manage assets in-house, co-custody, where they divide private keys into shares across multiple parties, and 3rd party full-custody, where they rely completely on providers to safeguard their assets. The best approach depends on the organization’s priorities, capacity, and risk tolerance.
Over $10 billion has been lost to crypto hacks and thefts, highlighting the need for top-tier security measures by custody solution providers to keep digital assets safe.
Institutions have urgent demand for swift and secure crypto custody solutions. By outsourcing to specialized providers, they can rapidly service this demand while enabling faster time-to-market, allowing institutions to focus on core competencies while accessing cutting-edge custody technology.
Navigating The Landscape Of Digital Assets
Bitcoin and Ethereum ushered in a new asset class, but digital assets have expanded far beyond these examples. Now encompassing:
The digital asset market is projected for massive growth as tokenization reshapes finance. At the late 2021 highs, the market cap of cryptocurrencies peaked at $3 trillion.
As these digital store-of-value continue to evolve, demand has skyrocketed for custody and storage solutions that provide safe, secure, accessible, and tailored services to the needs of both institutional and individual clients. With better regulatory framework put in place, predictions of tokenized RWAs could grow to a $10 trillion market by 2030.
Read more about the rise of institutional involvement in DeFi here.
Types Of Custody Solutions For Digital Assets
In simple terms, the "custodian" of a digital asset controls the private keys for a crypto wallet - crypto wallets explained. Custody solutions for institutions generally fit 1 of 3 types:
Institutional Self-Custody Crypto Wallet
Institutions directly secure digital assets for themselves and clients. They will assume full responsibility and manage their private keys using hot or cold wallets. This requires handling all regulatory duties, disaster recovery, backups, insurance, and more in-house.
Institutional Co-Custody Crypto Wallet
Institutions partner with licensed third-party custody providers to outsource crypto security. These providers will share the responsibility of managing private keys, compliance, insurance policies, and other duties, alongside the institution.
Institutional 3rd Party Full-Custody Crypto Wallet
Institutions stash away their digital assets to specialized third-party custody providers. These providers will present the full convenience of hassle-free custody for the institution's assets, while giving them peace of mind that their assets are protected by the provider's multi-layer crypto security infrastructure.
The best custody model for institutions depends on their priorities, in-house skills, and risk tolerance. Self-custody offers full control, but co-custody simplifies things and reduces liability, and 3rd party full-custody gives the best convenience but is subject to counterparty risks. With digital assets going mainstream, institutions can choose between the above custody solutions to meet their changing strategic needs.
Cobo has the turnkey solution to all the above scenarios, read more here:
Importance Of Having Top Tier Crypto Security
Cryptocurrency grants us full ownership of our assets, essentially allowing us to be our own banks. However, we rely on third-party wallet providers for storage, hence our digital assets are only as safe as the security measures the provider has in place.
The graphs below show the number of crypto heists that happened over the years and the amount of money that was stolen, amounting to $10 billion. This highlights the importance of having top-tier crypto storage security. Learn how the recent adoption in MPC wallet technology now delivers institutional-grade security to guard digital assets.
Source: https://www.comparitech.com/crypto/biggest-cryptocurrency-heists/
Safeguard Your Crypto In Preparation For 2024
With the Bitcoin ETF approval underway, institutions have shown increasing interest in entering the crypto space. This can be shown in the 2-month spike in BTC value, increasing from USD 25k to USD 44k, all in anticipation for new money flowing into the ecosystem. As such, institutions have recognized the urgent need for trustworthy custody solutions. Accelerated adoption has also aligned with greater regulatory clarity, custody solution providers and major financial institutions are now racing to provide custodial services as the world transitions to an ecosystem underpinned by blockchain-based digital assets.
Given this surge in institutional demand for digital asset custody, institutions require solutions that can be implemented swiftly without overhauling existing infrastructure. While self-custody via exchanges allows fee avoidance, third-party custody solutions provider provide more robust crypto security and convenience. Ultimately, institutions must align their priorities while ensuring the highest level of safety. By integrating solutions offered by custody providers like Cobo, where they manage crypto wallet for businesses_,_ institutions can rapidly service rising demand for secure crypto offerings without developing specialized expertise, thereby future-proofing their place in this quickly evolving landscape of tokenized finance.
Outsourcing Digital Asset Custody To Solution Providers
Institutions exploring digital asset custody must first weigh whether to build or buy solutions. Building grants maximum customizability and control, but demands substantial investment, intricate technical skills, continual management resources, and heightens operational risk. Instead, partnering with custody providers radically accelerates time-to-market while eliminating the headaches of in-house development.
The decision ultimately hinges on the institution's appetite for custom features versus speed-of-deployment. But in many cases, the plug-and-play route proves optimal, allowing institutions to immediately service growing custody needs. As turnkey solutions gain market traction and the technology continues advancing, building in-house loses appeal compared to collaborating with specialized custody solution providers. Their cutting-edge solutions enable institutions to skip over the complexity and focus on their core business and competitive strengths.
If you are an institution interested in exploring enterprise-grade digital asset custody, Cobo offers best-in-class products and services. Check out www.cobo.com or drop us an email at [email protected] to find out more.
