The lack of mainstream custody solutions for crypto assets has been a major roadblock preventing institutions from entering the space. With exchanges continually the target of major hacks and self-custody introducing an array of human and technical issues, trusted third-party crypto custody solutions by a major bank is what the market needs to enable the formation of more crypto hedge funds and allow legacy managers and institutions exposure to crypto.
Major banks are now either testing or, in some cases, in the process of rolling out crypto custody solutions; Nomura and Intercontinental Exchange have announced definitive plans and sources state other major banks (J.P. Morgan, Goldman Sachs, Bank of New York Mellon) are exploring offerings.
We believe these major banks will roll our offerings within the next 12 months as there is a race to be a first mover, interest from funds, fees to be earned as a custodian and to fend off growing startups (Coinbase Custody, Gemini). This will drive massive capital inflows as legacy funds and asset managers can invest in crypto with the backing of major financial institutions.
Startups are leading the charge offering new crypto custody solutions that safeguard an ever-growing array of digital assets and it is logical to assume a major bank will purchase one of these entities to accelerate its entry.
The major reason for custody in the space is due to the regulation of hedge funds, which requires funds with over $150M in AUM to register with the SEC. All SEC registered funds require most adhere to the qualified custodian rule for all client funds. This is normally satisfied by a prime broker in the traditional asset management business, and there are some qualified custodians now in crypto but usually not covering all of the funds holdings, which is required and can not be a piecemeal coverage setup. As such having a major bank be a custodian is important, especially that it coverages a broad range of digital assets, not just the majors (Bitcoin and Ethereum).
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About The Founder
Tom has a passion for finding the most relentless founders and disruptive protocols. Prior to 51percent, Tom was an equity research associate at Oppenheimer & Co Inc, covering cloud and communications where he researched and wrote an extensive blockchain white paper in addition to researching wireless and cloud spanning from 5G to OTT video and cloud technologies. Tom previously founded SecretCaps, a technology MicroCap research company and received his B.S. in Finance from Rutgers Business School
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