A mong the most searched items on Google last year were Covid-19 vaccines , Squid Game , AMC stocks and - yes , you guessed it - cryptocurrencies . This group – while perfectly encapsulating the cultural phenoms and state of the world in 2021 – proves that despite the highs and lows , the lauding and the controversies , cryptocurrencies appear to be here to stay . What has further convinced us of this reality is some of the world ’ s largest custodians have moved from dipping their toes in the water , to diving headfirst into servicing cryptocurrencies during the past year . Cryptocurrencies and stablecoins have suffered a severe blow in 2022 with prices falling drastically in some of the top tier digital assets , crypto hedge funds going bankrupt and some stable coins being , well , not so stable . Nevertheless , both traditional and non-traditional custodians are developing institutional-grade digital asset custody platforms to support digital asset trading – including in instruments beyond just cryptocurrencies and stablecoins . Over the past 12 months , some of the largest names in banking have announced their digital asset servicing offerings and thrust top executives into leadership roles for these units . Many seemed undeterred by any volatility , with a handful – BNP Paribas , Northern Trust and CACEIS – even launching amid the Bitcoin price crash . As we write this in Fall 2022 , you ’ ll be hard pushed to find a custodian without a fully-fledged digital asset plan , a far cry from where we were at the beginning of 2021 . So as incumbent custodians join the upstart exchanges and independents in the world of digital asset custody , Global Custodian assesses which providers are
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best positioned to dominate this new world and did the banks time their moves to perfection ?
Institutions keep watch of digital assets from the sidelines Digital assets is a catch-all term , but it generally includes things like cryptocurrencies , stablecoins , security tokens and CBDCs [ central bank digital currencies ], namely virtual fiat currencies designed to facilitate seamless retail payments and expedite cross-border settlements . Until the recent de-risking by investors , cryptocurrencies were experiencing strong growth as institutions piled in to obtain supposedly uncorrelated returns . Most of the institutional activity in cryptocurrencies is dominated by smaller investors – namely hedge funds , family offices and high net worth individuals . For instance , a study by the Alternative Investment Management Association in June 2022 found that 38 % of hedge funds are now investing in digital assets , up from 21 % one year earlier . It is true that some of the very large global asset managers are
“ Northern Trust is working to a 2030 plan , where we anticipate around 5 % -10 % of assets will be digitally issued and managed . The problem for start-ups is that they need returns now , so planning five or ten years ahead for them is not easy .”
JUSTIN CHAPMAN , GLOBAL HEAD OF DIGITAL ASSETS AND FINANCIAL MARKETS , NORTHERN TRUST
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