The emerging role of cryptocurrency custodians

At the Consensus 2019 cryptocurrency and blockchain conference in New York City, the mood was upbeat and the markets reported a bullish sentiment on Bitcoin, which surpassed the $8,100 level on May 15. Another reason for the optimism was related to a discussion panel featuring the CEO of a firm dedicated to providing custodian services to digital currency holders. According to Alexandre Kech, current director of Onchain Custodian, traditional providers of these services are seriously interested about forging partnerships with firms that are already active in this emerging segment.

In many jurisdictions, cryptocurrency custodians operate in what could be called a gray sector. Financial institutions that provide custodian services are typically banks and trust companies that have their fingers on the pulse of regulatory compliance. Custodians are guardians and administrators of funds, and they would certainly offer their services to cryptocurrency holders, but only if the laws and regulations in the jurisdictions where they operate recognize digital currency tokens as financial assets.

Kech believes that established custodians are more likely to partner with companies currently offering similar services for cryptocurrencies, and they prefer this approach to developing an infrastructure that will enable the safeguarding of tokens. In the case of publicly traded companies that offer custodian services, institutional investors known for their conservative views may not be thrilled to learn about a bank or trust company holding cryptocurrencies because of volatility concerns; for this reason, some companies will choose a trustworthy partner to play it safe and reduce shareholder concerns.

Another cryptocurrency entrepreneur who participated in the discussion remarked that financial custodians have to start somewhere in order to establish a track record. Even though digital currency custodians are entering uncharted territory, they can still keep records for later submission to regulators. In the United States, as soon as a regulatory agency recognized cryptocurrencies as financial assets, custodians can market their services to individuals and business holders, but prospective account holders will still prefer to deal with established names.

A good example of where this segment is headed can be seen in the arrangement between the Intercontinental Exchange, parent company of the New York Stock Exchange, and the Digital Asset Custody Company, which will soon provide a digital custodial platform for major investors.