Crypto Custody Services Can Boost Institutional Adoption – Report
The FTX crypto exchange collapse has ushered in a shift in focus on how token holders can best store their assets, with regulated custody services becoming the new trend in the industry. New research shows that custody services’ revenue could spike to $8 billion by 2033 from under $0.3 billion in 2023.
A Foundation for Institutional Crypto Adoption
The latest research by Manas Agrawal and Gautam Chhugani revealed that crypto custody could be the foundation for further institutional adoption. The authors noted that crypto custody is focused on securing the holder’s private key, which makes sense in the current technological scenario.
Furthermore, the research added that post-FTX, there will be an increase in the adoption of crypto custody from existing investors. In addition, there will also be an expected leap in custody services in the short term, which institutional activities in the digital asset ecosystem will push.
According to the famous brokerage firm Bernstein, there is a massive revenue opportunity that crypto exchanges and conventional banks can explore to create a Wall Street-like environment to provide investors with brokerage services.
With the rapid rise in custody services, Bernstein anticipates an increase in market-making along with growing institutional participation. The study added that increased institutional participation brings demand for liquidity for large-cap tokens.
For emphasis, a market-maker is a business that provides liquidity for assets or security for other tokens. Furthermore, the researchers noted that institutional crypto investors would require the services of prime brokerage platforms like over-the-counter (OTC) desks, lending, and derivatives.
However, Bernstein stated that the market will likely rise to $14 billion in revenue by 2033 if the current momentum is sustained.
FTX Collapse And The Rise Of Custody Services
Following the spectacular crash of the FTX exchange, the crypto market has opened a chance for custodian players to flood the digital asset market. Experts believe that the actual beneficiaries of the FTX debacle are those having large balance sheets and big names to their advantage.
For example, even before the FTX collapse, Fidelity Investments launched the Fidelity Digital Asset with a focus on crypto-based institutional custody. In November 2022, the firm unveiled its waiting list for the upcoming Fidelity Crypto, its native crypto retail trading tool.
Similarly, the New York-based BNY Mellon joined the fray by launching its crypto custody services last October. As a result, analysts noted that smaller crypto exchanges like Coinbase might need help attracting institutional interest, given their limited balance sheets.
As institutional players continue to move into the crypto space, they seek active players who can secure their funds for weeks or months. Apart from this, large investors want to ensure that the platforms can use their crypto assets to bring in yields before depositing their funds.
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