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transmitter which also means we adhere to institutional KYC and AML standards . Our battle tested offline cold storage is built as a solution for the largest institutions in the world . The first line of defence is our security protocols , and we have got an unblemished track record in that respect .”
A multi-asset service model is key The digital asset custody platforms operated by traditional banks are still in their relative infancy , with limited activity happening on them at the moment . In contrast , many of the
“ The big question we have to ask ourselves is what role will unbacked digital assets such as cryptocurrencies play in future portfolios , and whether and how quickly will securities take on token form ?”
non-bank crypto-custodians have a much more developed crypto-custody infrastructure in place - together with a rota of clients actually using their services . “ Digital asset custody is still in its early days . The big question we have to ask ourselves is what role will unbacked digital assets such as cryptocurrencies play in future portfolios , and whether and how quickly will securities take on token form ?” says Wright . He believes some institutions will trade certain digital assets alongside traditional securities but he reckons that they will only account for a small slice of their overall portfolios , at least until tokenised securities gain in popularity .
It is here where traditional custodians are at an advantage relative to standalone crypto-custodians , as the former have extensive experience in servicing and safekeeping conventional assets . If digital assets do take off , then the banks can simply throw resources at their digital asset custody platforms , which will complement their existing product suites .
With clients looking to rationalise their providers and consolidate multiple custodial relationships , banks offering both traditional and digital custody will be in a strong position . “ Most institutions will not want to go to multiple providers to support them with both their digital and traditional assets . Instead , I believe institutions will want all of these services provided to them under one roof . Only a traditional custodian can do that now ,” says Wright . Moreover , an institutional asset manager running – say – a crypto ETF ( exchange traded fund ) – will need more than just a custody solution , says Werner . “ Institutional managers will also require fund administration and depository , along with connectivity to the traditional world of securities ,” he says .
ANDREW WRIGHT , CHIEF ADMINISTRATION OFFICER , THOMAS MURRAY
Who will emerge victorious ? Right now , the digital asset universe is dominated by cryptocurrencies , a highly volatile and still unregulated asset class . Most banks are reluctant to safekeep let-alone provide any services to investors trading crypto-currencies . As such , nonbank providers will likely own the crypto-currency market for some time yet . Where banks could enjoy success is in the regulated security token market , although activity in this space has been fairly muted barring a small handful of issuances . “ I suspect we will see a middle ground emerge , with a retail / institutional split . Irrespective , I imagine by 2030 all market participants operating in the digital asset space will be subject to strict regulations and tighter controls ,” says Chapman .
52 Global Custodian Fall 2022