The digital asset industry reached its peak in November 2021, surpassing $3 trillion in value. However, the custody segment of the market has remained more modest, with a total of $447.9 billion in assets through 2022. These figures were revealed in a joint report by consulting firm PwC and wealthtech platform Aspen Digital, published on July 11.
The report highlights that there are currently 120 managed service providers in the digital asset custody space as of April 2023. These providers are categorized into two main groups: third-party service providers and self-hosted solutions. The institutional landscape is evolving, with increased interest in cryptocurrency staking due to the Ethereum merger, as well as the emergence of non-fungible tokens (NFTs) and the Metaverse, attracting institutional investors.
One of the key challenges faced by the custody industry is security. The report cites the failure of FTX in 2022 as an example of the importance of proper governance, risk management, and internal controls. In response, institutions are increasingly seeking self-custody solutions or reputable digital asset customers to protect their assets, rather than relying solely on trading platforms.
Insurance policies also present a challenge for custodians. Self-custody solutions do not offer insurance coverage, meaning users are not compensated for the loss of digital assets caused by negligence. The report emphasizes that a robust insurance policy is an important criteria for investors when selecting a digital asset custody institution.
To assist investors in the selection process, the report proposes a five-step approach that includes mapping the market, creating a rating system, evaluating performance, and conducting other preliminary procedures. In related news, Canadian financial authorities recently issued guidance to him lp fund managers comply with legal requirements for investment funds holding crypto assets. Additionally, they expressed confidence in a regulated cryptocurrency futures market, emphasizing its role in facilitating greater price discovery.
