Kyle Samani, hedge fund manager at Multicoin Capital, says the final barrier stopping institutional investment was proper cryptocurrency custodianship, and over the next year investors will recognize that this barrier has finally been broken down, leading to a huge release of capital into the cryptocurrency markets.
Properly licensed and regulated cryptocurrency custodianship is essential for institutional investors like hedge funds and banks to feel safe enough to make big investments in cryptocurrency. Custodians ensure that all government regulations are followed, which is quite a complex and difficult task since regulations are constantly evolving and vary from country to country and even from city to city. Also, custodians are insured, so institutional investors that use a proper custodian don’t have to worry about hacking, theft, or sending cryptocurrency to a wrong address.
Additionally, hedge funds often give large amounts of money to their traders, and by mandating that traders use custodians, it guarantees that the traders won’t spend the money on vacations or expensive personal items. Therefore, using a custodian will give hedge funds peace of mind to expand their operations since they will be able to give their traders more freedom, since the custodian guarantees money given to cryptocurrency traders can’t be misplaced.
Multicoin Capital is using the relatively new Coinbase custody services, which only accepts deposits of USD 10 million or more and charges a fee of USD 100,000 just to set up an account, in addition to 0.1% monthly fees on deposited assets which would be USD 10,000 for the minimum deposit. Clearly, Coinbase custody services isn’t geared towards typical investors, but towards the over 100 cryptocurrency hedge funds that have been created in the last year. Coinbase CEO Brian Armstrong says that over USD 10 billion of institutional money is waiting on the sidelines of the market.
Major Bitcoin wallet BitGo acquired Kingdom Trust, a licensed qualified custodian regulated by the South Dakota Division of Banking that controls USD 20 billion of assets. BitGo is planning on merging with Kingdom Trust in order to roll out cryptocurrency custodian services. Nomura and reputable Bitcoin wallet Xapo have also launched institutional grade cryptocurrency custodian services.
Now, there are several reputable firms offering cryptocurrency custodian services for institutional investors, and if Kyle Samani is right it is only a matter of time until large amounts of institutional capital start flowing into markets to spark what could be the biggest cryptocurrency rally in history.
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