Gong-pil Choi | Source: researchgate.net

Gong-pil Choi, the director of the Korea Institute of Finance, said that custody in crypto is crucial in eliminating hacking fears and facilitating the growth of the market.

The Korea Institute of Finance, an agency that works with the government to research and evaluate financial policies to bolster the country’s financial sector, has emphasized that the management of public keys to access Bitcoin and other cryptocurrency wallets is burdensome and is difficult for normal investors.

Crypto Custody is Key

Brokerages and asset managers provide custody of traditional assets because of the risk involved in maintaining ownership over an asset.

Director Choi said that in the short-term, the custody market in the cryptocurrency sector will grow rapidly as investors seek for regulated and secure ways to invest in the emerging asset class.

He stated:

Cryptocurrency exchanges are risky due to hacking fears and the storage of private keys can be burdensome for investors, as in the case of theft, it can cause trouble. Even the traditional financial sector has seen the establishment of the custody market. Cryptocurrencies are more risky than traditional assets and the custody market in crypto will become a rapidly growing market.

Major cryptocurrency exchanges in the U.S. market such as Coinbase have started to focus on delivering reliable custodial services to both retail and institutional investors.

Some existing businesses in the cryptocurrency space including BitGo have acquired trusted and regulated custodians to operate as cryptocurrency custodial service providers.

Even in China, which has imposed a strict blanket ban on cryptocurrency trading, crypto custodians have debuted with strong support from local venture capital firms.

In November, a Shanghai-based startup debuted to provide custodian services to cryptocurrency trading platforms and over-the-counter (OTC) exchanges.

Kenneth Xu, the CEO of the startup, told SCMP, a Hong Kong mainstream media outlet, that the demand for institutional custodian services has started to increase in Asia especially in regions like Hong Kong and Singapore.

Hwang Hyun-cheol, a general partner at a blockchain investment firm based in South Korea, said that in an event during which a major asset manager or an institution enters the cryptocurrency market, custodial services and regulated investment vehicles are necessary to facilitate a large investment.

He explained:

If an asset manager that oversees $1 billion puts 1 percent of its capital in crypto, that’s already a big amount. These institutions can only enter the crypto market if there are tools to hedge and protect their investments. A strong infrastructure for large-scale institutional investors has to be established.

How Far Away is it?

Currently, Fidelity remains as the only institution amongst the world’s largest financial organizations to be providing crypto custody to clients.

Goldman Sachs and Morgan Stanley shared their intent to provide cryptocurrency products in the short-term but both companies have been waiting for regulatory approval from the U.S. authorities.

Due to regulatory leniency, more custodians are expected to debut in Asia first, in established markets like South Korea, Japan, and Singapore.

Featured image from Shutterstock.

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