Custody and Regulation: The foundation required for that elusive “big money”.
The world financial market has been turbulent the last few years. With new international tariffs and restrictions headlining the news, this pattern is unlikely to fade. The cryptocurrency community has been buzzing with the idea of the “big money” (major institutional investment) for years and perhaps that time has come.
“Mass adoption is coming!”
“Institutional money is going to take cryptocurrency to the next level.”
“Crypto is in the same place the Internet was during it’s early days.”
Quotes, mantra’s and dreams about the future of cryptocurrency are still abundant albeit far more subdued then 6 months ago.
The true barrier for many institutions has been custodianship and the major players like Coinbase have understood what this means and have made provisions to accommodate.
Coinbase announced their plan for custodianship stating:
“ By some estimates there is $10B of institutional money waiting on the sidelines to invest in digital currency today.” -Coinbase Custody announcement by Co-Founder and CEO, Brian Armstrong, November 2017.
Custodial services will provide institutional investors with a place to store their digital assets under strict regulations and most often in offline cold storage. These measures prevent hacks and online interference, insuring the assets value.
Major players like JPMorgan, and Northern Trust have expressed interest in offering custody services and some smaller companies like Itbit and Bitgo have been communicating with the Securities and Exchange Commission and the Financial Industry Regulatory Authority to become qualified custodians. Meanwhile Gemini and Ledger both have custodial services that they offer.
Regulations and licensing are significant and if you have been keeping up with the headlines these issues are rapidly resolving as governments and exchanges are grappling over the outlines of what the regulations can and should be. It is fully expected that by the end of 2018 there will significant regulatory influence through the cryptocurrecy ecosystem.
“Over the next year, the market will come to recognize that custodianship is a solved problem. This will unlock a big wave of capital.” -Bloomberg interview with Kyle Samani, June 2018.
Some governments have admitted to not regulating sooner as it would legitimize cryptocurrency and cause a huge disruption of the current financial regulations and laws.
“The South Korean government had postponed the regulation of the cryptocurrency sector because it feared consumers will acknowledge it as the government legitimizing the cryptocurrency market.” -CCN article, June18, 2018
This delay in regulation has also held back competition of custody providers. Coinbase charges a $100,000 setup fee, and 10 basis points per month, with a minimum required balance of $10 million. It is expected that with additional larger providers of custodianship services that the competition will lead to a decrease in cost and open the door to more institutional investors.
Rregulations and access to secure and insured services that institutions are accustom to using, like Custodial Services, are a must. The foundations must be in place for the “big money” to wade into the market. Do not be mistaken, most of the household names already have a foot in the door but they won’t be risking the amount of money the crypto-community has been waiting for without protection. A market that appears to be bottoming out, the foundations of regulation and custody evolving and the public interest of the major institutions is not a coincidence. In a down trending market some might say that “the end is near” but we are watching, planning and waiting for this “new beginning”.
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