Why is a crypto custodian necessary?

The main purpose of a crypto custody solution is to safeguard cryptocurrency assets.

The main utility of crypto custody solutions lies in the safeguarding of cryptocurrency assets. Custodian services are generally aimed at institutional investors, such as hedge funds, who hold large amounts of bitcoin or other cryptocurrencies. Their purpose is twofold:

  1. They empower investors who do not want to deal with the technical aspect of securely storing digital assets to still invest in this new asset class.
  2. They enable institutional investors (who are required to store their investment at a regulated custodian) to enter the digital assets market.

Now that regulated custodians exist, we can expect more institutional money to start flowing into blockchain assets. According to SEC regulation promulgated as part of the Dodd Frank Act, institutional investors that have customer assets worth more $150,000 are required to store the holdings with a “qualified custodian."

The SEC’s definition of such entities includes banks and savings associations and registered broker-dealers. Futures commission merchants and foreign financial institutions are also included in this definition.