Centralized financial structures are starting to embrace crypto further, through new custodial programs and services. Which could play an integral role in the future of crypto finance.
2020 has been weird in a year more ways than one, but perhaps the most fascinating of about-faces that this year has brought us (as far as this article is concerned at any rate), is this seemingly sudden new embrace of all things crypto by legacy centralized financial institutions. With the likes of Visa and PayPal announcing their new platforms for supporting crypto payments, DeFi creating a space for options and futures, to big names in financial legislation now approving a future that contains crypto holdings and custody services.
While to the incautious and disinterested observer- these things may not mean much, to institutional and vested retail investors, these small embraces spell a definite shift in the long-held sentiment of legacy finance. One that seems to be becoming ever more crypto-friendly. Even with new, small volume or day trading, investors can see this possible rose-tinted future from the purview of their Bitvavo accounts. While these exchanges can help them better navigate the markets- custodial services can help them better navigate their security.
What Are Holdings & Custody Services?
Banks have long provided standard financial custodial services. These services essentially allow banks to hold a customer’s financial assets and securities for safekeeping. These services also mean that the bank or firm holding them can also help manage the assets themselves. They can collect dividends, settle transactions, and aid with account administrative needs.
Most custodial services come with different levels of interaction. Some will manage investments and accounts at large, particularly for large investors, elderly, or minor customers. This is largely because these specific groups often lack the expertise, legal ability, or time in order to tend to these assets themselves. It’s also important to note that these types of banks cannot engage in “traditional” banking practices- such as personal accounts or mortgages and personal lending. Generally working only with assets like stocks, bonds, or commodities.
While most custodial institutions do practice similar duties and follow similar guidelines, these rules vary from nation to nation. Ergo, what one custodian may be able to practice in the US- another in Singapore may not.
Why Are Crypto Custody Services Useful?
Crypto custody services could prove exceptionally useful, particularly as the crypto markets are often difficult to understand and properly navigate. Not only that, but it also enables investors to securely store and manage large volumes of bitcoin and other types of cryptocurrencies. Being a very common practice in traditional finance, there are even those that believe allowing for crypto custodial solutions could bring more institutional interest into the market. Particularly as crypto options are becoming ever more popular.
But perhaps the most important reason for crypto custodians to exist is security. Private keys or the digital signature that is the sole portal of access into any one crypto account can be devastating if it is misplaced or forgotten. Stories of early bitcoin investors losing out on millions of dollars worth of BTC- simply because of a misplaced private key, are all too common. This is essential because unlike every other account we hold, there is no way to recover a private key that has been lost or forgotten. In the instances where a family member has died “with their keys”, generations’ worth of inheritance has been lost.
Using a crypto custodian- even if it’s only to keep safe a private key in case of death, or poor memory- can be a massive peace of mind for even a retail investor. Let alone the often necessary help in better managing existing investments, should the crypto custodian be able to offer such services. Up until this year, few crypto custodial services were available- but thanks to new legislation in Singapore and the US- some big names in traditional finance may soon be able to hold the keys to your crypto kingdom.
What Does It Mean for Crypto?
This is just another brick in the wall of the tower that disruptive technologies seem to be building. As cryptocurrencies, blockchain, and DeFi steadily begin to build their analogs to centralized banking structures, more and more mainstream financial services are jumping aboard. This could mean further good news for bitcoin investors, as it may not only serve to bump up already incredibly high values, but it could also help to reassure us all that crypto is indeed here to stay in the long term.
Which could serve to only further drive innovation, steadily linking together familiar and trusted financial paradigms with those that are decentralized and truly global. Making space for citizens, governments, and high-volume investors all at once.