According to researchers, the two biggest developments for the custody market are the growth in interest in cryptocurrency staking and nonfungible tokens.
According to a joint analysis by PwC and Aspen Digital, the value of the digital asset market peaked at over $3 trillion in November 2021. At $447.9 billion in 2022, the custodial segment of the market, however, remained more modest. This data is contained in a 39-page study on the custody of digital assets that was released on July 11th.
The research documents the existence of 120 custody service providers as of April 2023, divided into self-custody options and third-party service providers. Institutional developments have drawn institutional investors and raised interest in crypto staking, such as the Ethereum Merge, the rise of nonfungible tokens (NFTs), and the metaverse.
The research names security as one of the custody industry’s main challenges. It emphasizes that weaknesses can result from inadequate governance, risk management, and internal controls, as demonstrated by the failure of FTX in 2022.
Another area of worry for custodians is insurance policies. Self-custody options sometimes do not include insurance, therefore customers are not reimbursed for any loss of digital assets as a result of carelessness. According to the report, family offices prioritize reliable insurance plans when choosing digital asset custodians.
The paper offers investors a recommended strategy for choosing custody service providers, including market mapping, rating systems, performance reviews, and other preliminary steps. With the help of this framework, investors can make well-informed choices on custody arrangements.
Canadian financial regulator published guidelines earlier this month to help fund managers adhere to legal requirements for investment vehicles holding crypto assets. The regulator also voiced confidence in the cryptocurrency futures market, stressing its contribution to better price discovery.
In order to address the difficulties and worries related to the custody of digital assets, the PwC and Aspen Digital report underlines the need for stronger security and insurance practices within the custodial industry.
Custody service providers are essential to managing and protecting digital assets as the market for them continues to develop. Investors and institutional actors are urged to take into account the report’s observations as they make judgments and negotiate the intricacies of the ecosystem around the custody of digital assets.