South Korean Financial institute Director, Gong-pil Choi recommends crypto custody as a best-fit solution to overcome the increase in crypto hacking instances. Adoption of crypto custodial services will eliminate the fear of loss of digital currencies and also encourage market-wide adoption.
Research by this top financial services head has revealed that one of the biggest challenges for the retail investor is managing public keys for accessing cryptocurrencies, wallets.
Crypto Custody to eliminate the risk
Traditional financial services include agencies such as brokerages, asset managers who will ensure custody of assets since such collateral is exposed to high risks of ownership.
According to Choi, the growth of custody market is likely to be exponential since there is strong demand for such services by investors who want to explore the new class of assets.
“Cryptocurrency exchanges are risky due to hacking fears and the storage of private keys can be burdensome for investors, as in the case of theft, it can cause trouble. Even the traditional financial sector has seen the establishment of the custody market. Cryptocurrencies are more risky than traditional assets and the custody market in crypto will become a rapidly growing market.”
In the US, custodial services are already being offered by leading exchanges such as Coinbase at retail and professional trader levels.
In some market regions, third-party custodial service providers were acquired by agencies such as BitGo to match market needs. Though China does not allow cryptocurrency trading, there exist a number of crypto custodians set up from funds provided by many venture capitalists from the region.
The shaghai-based startup has proposed services which are an over-the-counter exchange.
Why are custodial services necessary?
Hwang Hyun-cheol, a partner at blockchain investment firm there is a need for custodial services because:
“An asset manager that oversees $1 billion puts 1 percent of its capital in crypto, that’s already a big amount. These institutions can only enter the crypto market if there are tools to hedge and protect their investments. A strong infrastructure for large-scale institutional investors has to be established.”
Despite massive market demand for custodial services, only one big financial institution has ventured to offer the same. Fidelity is the largest financial organization providing crypto custodial services, while many other big names in this sector are awaiting regulatory approval before they commence offering similar services for the long term. A number of custodian service providers are likely to begin operations in Asian countries such as Singapore, South Korea as well as Japan since the regulatory requirements are apparently lesser.