Selecting A Reliable Crypto Custodian: Investors Urged To Prioritize Security Amid Increased Risk

In November 2021, the digital asset industry soared to a record high of $3 trillion, while the custodial segment of the market maintained a more conservative figure of $447.9 billion in 2022, according to a report.

Consulting firm PricewaterhouseCoopers (PwC) and Aspen Digital, a wealth tech platform conducted a comprehensive study, which identifies 120 custody service providers as of April 2023, categorizing them into two main groups: third-party service providers and self-custody solutions.

The report highlights significant institutional developments, including a surge in interest in crypto staking, spurred by the Ethereum Merge, and the emergence of nonfungible tokens (NFTs) and the metaverse, which have piqued the interest of institutional investors, Cointelegraph reported.

The report points out that security remains a major hurdle for the custody industry.

The report states that due to insufficient governance, risk management, and internal controls, as evidenced by FTX's 2022 debacle: "Institutions are increasingly looking to safeguard their assets through self-custody solutions or reputable digital asset custodians, rather than simply holding them with exchange platforms."

Also Read: Crypto Regulatory Turmoil: SEC Asserts Authority, Republicans Struggle To Respond

Insurance policy is another area of concern for custodians.

Self-custody solutions do not provide insurance policies, and users are not reimbursed for any loss of digital assets due to negligence.

The report's sources among family offices indicate that robust insurance policies are a crucial factor when selecting digital asset custodians.

The report proposes a five-step approach for investors to select a custody service provider, which includes market mapping, establishing a grading system, performance evaluation, and other initial procedures.

Earlier this month, Canada's financial authority provided guidelines to assist fund managers in adhering to legal requirements for investment funds that hold crypto assets.

The authority also expressed its confidence in the regulated futures market for crypto, stating that it "promotes greater price discovery."

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