Institutional investors are becoming more attracted to cryptocurrencies as numerous exchanges and other companies begin to offer digital asset custody services. Ten such organizations have registered for Coinbase’s new cryptocurrency custody service. Now, the security startup, BitGo has acquired the custodial service, Kingdom Trust. He stated that it will expand its custody services to support an additional 57 ERC-20 tokens, built on the Ethereum blockchain.
Hedge funds managers, pension fund managers and others who manage client assets will benefit greatly from custodial services, where the theft of assets may affect numerous clients. Using BitGo and similar services, such funds have an extra layer of protection, where the onus of protecting the private keys to these assets falls on the asset custodian.
The increase in companies offering cryptocurrency custodian services is a strong signal that digital asset security will continue to grow as a new industry. With so many coins, including the 57 Ethereum tokens added to BitGo, people have become more concerned about losing their private keys, or having them stolen through the use of malware and other methods. While cryptocurrencies are encrypted by definition, thieves have become creative in their use of social engineering techniques to steal crypto, and users will always be somewhat careless when it comes to their own security. At the institutional level, millions of dollars worth of assets may be lost if an employee gives a hacker access to private keys, either unintentionally or not. In this way, custodial services may be seen as an insurance policy against such losses.
BitGo was founded in 2013. Since then, they have grown their blockchain company to include such services as digital wallets, private blockchains, cold storage, institutional custody and other services. The backbone of the company is a multi-signature security model. Using their system, BitGo co-signs transactions as a guarantee of funds availability, resulting in instant transactions and reduced loses. In the event of an actual loss, a user may file a claim with the company to be compensated in full.
Until now, BitGo’s extensive services have been limited to the most popular cryptocurrencies, including Bitcoin and Ethereum. With its expansion into these ERC-20 tokens, BitGo is on a higher level than some of the largest custodians in the fintech industry, including BNY Mellon, JPMorgan and Northern Trust, which have developed serious interest in the model, according to Bloomberg.
With regulated crypto custody services on the table, institutional investors will continue to flock into this market. In his interview with Bloomberg, hedge fund manager Kyle Samani, a managing partner at Multicoin Capital said that he enjoys making multimillion-dollar bets on cryptocurrencies, but ensuring his holdings weren’t stolen has always been a challenge. He said, “There are a lot of investors where custodianship was the final barrier. Over the next year, the market will come to recognize that custodianship is a solved problem. This will unlock a big wave of capital.”
Samani is not alone in this view, and BitGo’s pipeline includes several hundred hedge funds and wealth managers. Their entry into the digital currency market will be a major game changer.