Why Wall Street Firms Are Pushing For Crypto Custody – BitRss – Crypto World News

The cryptocurrency space has recorded massive growth within the relatively short period of 15 years. Its market capitalization stands at a staggering $2.09 trillion, double what it was about a year ago.

This astronomical growth has triggered interest from Wall Street firms and traditional institutions that want a piece of the action.

Wall Street’s Interest in Crypto Custody

Institutional interest by Wall Street firms comes in the form of crypto custody services for investors in the space. For context, crypto custody involves services meant to safeguard and manage digital assets on behalf of individuals or organizations.

Custody services are of two types – self-custody or third-party custody. The third-party custodian holds private keys on behalf of the user while offering security such as multisig wallet insurance and risk insurance.

Although custody services in traditional investment are straightforward and almost dull, the crypto world offers “excitement.” This excitement, triggered by threats posed by scammers, hackers, and other malicious actors, has made custodial service more expensive in the crypto ecosystem.

Experts estimate that providing crypto custody costs approximately ten times more than traditional investment. Besides the huge cost implications, the crypto custodial service space has been projected to grow at 30% per annum.

The growth rate and the sector’s potential have made it a magnet for Wall Street firms. According to Campbell Harvey, finance Professor at Duke University, new players anticipate a larger market for custodial services.

Therefore, despite risks from malicious actors, Wall Street firms remain firmly determined to play in the space. However, the regulatory environment is a major hurdle. Notably, the U.S. Securities and Exchange Commission’s SAB-121 rule, which President Joe Biden vetoed despite U.S. lawmakers’ vote against it, is one of the top rules being watched.

The rule’s implementation has sparked debate with some alleging lack of transparency by the SEC. Nonetheless, some new entrants anticipate a more regulatory-friendly atmosphere if a new administration is inaugurated.

Opportunities Presented by Spot Bitcoin and Ethereum ETF Markets

The growth trajectory, which has made it attractive to Wall Street, is attributable to the approval of spot Bitcoin ETF. While this product was approved in January, spot Ethereum ETF bagged the greenlight in July.

This ETF provided a safe vehicle for traditional investors to gain exposure to these digital assets in a regulated manner. The Spot Bitcoin and Ethereum ETF have a combined AUM (asset under management) of $56,470,326,396.

As expected, the spot BTC ETF accounts for $49,843,783,431. Although the spot Ethereum ETF has a lower AUM, industry experts anticipate better performance soon. The ETF products have served as leverage for some major banks to enter the crypto space.

Notable crypto-exposure banks include JPMorgan, Goldman Sachs, and Bank of America. These banks have launched crypto trading desks to attract a new, typically younger customer base. They have also caught up with the market by providing customers interested in these asset classes with direct access.

Risks and Rewards of Mainstream Crypto Adoption

Although mainstream crypto adoption opens the market and drives innovation, experts warn of inherent threats to crypto firms. One potential risk is centralization.

The decentralization principle could be undermined if the government and big corporations dominate the market. Additionally, the sector could face stricter regulation, limiting crypto firms’ freedom and profit margin.

The growing user base may also require better security measures to combat cyber security risks. Smaller crypto firms may need more financial capacity to compete with these established traditional institutions.

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