There are over USD 190 billion worth of bitcoin in circulation today that are at risk due to an insecure level of custody.
This is revealed by research by Opimas according to which a number of institutional-level players, and even some large crypto exchanges, are entrusting the custody of BTC to “subpar” approaches.
The custody of cryptocurrencies is indeed a challenge for those who hold them on behalf of their clients, because transactions are irreversible and anyone with full access to a wallet’s private key can effectively control all the funds held there.
Fortunately, however, a number of companies have also emerged to address this problem.
The fact is that many of the large holders of bitcoin and other digital assets continue to rely on custody devices designed only for individual investors, and while some of these devices are secure and reliable, the operational risk posed by this approach remains significant when used by institutional investors.
Moreover, some funds are still held on the hot wallets of exchanges, meaning that overall around 22% of digital assets held by institutional investors are held in relatively risky ways.
In contrast, the remaining 78% of digital assets held by institutional investors are held in secure institutional custody.
Opimas also estimated that the current annual revenues generated by the institutional cryptocurrency brokerage and custody market are approximately $2 billion, but will grow to nearly $8 billion by 2026. A significant portion of this revenue comes from brokerage services, such as trading and settlement, lending, financing, staking, reporting and capital-related services.
In addition, the rules governing the storage of cryptocurrencies by institutions are becoming clearer, and in some cases even more favourable, such as in the US in particular, where a ruling by the Office of the Comptroller of the Currency (OCC) has allowed banks to store cryptocurrencies on behalf of their clients.
This regulatory clarity has led a number of financial institutions to provide trading and custody services for digital assets, so much so that Opimas predicts that institutional holdings in cryptocurrencies will grow from the current 20% of cryptocurrency market capitalization to over 50% by 2026.