american banker
Custody Bank has announced Bitcoin storage services for institutional corporations in some states, marking a long-awaited milestone for financial institutions specializing in cryptocurrencies. Years of battle with federal regulatorsthe bank announced this week.
The Cheyenne, Wyoming-based company launched bitcoin custody services last month, founder and CEO Caitlin Long said after years of building a bank in tandem with crypto regulation in her home country. he said in an email to American Banker after the marathon. She added that Custodea has created a Bitcoin custody platform in-house to prevent security issues that could arise from third-party integrations, adding that Custodia has created a Bitcoin custody platform in-house to prevent security issues that could arise from third-party integrations, adding that it has “used other regulated cryptocurrencies in combination with third-party software.” It has caused problems for custodians.”
The core of Custodia’s custody platform is its segregated account structure. This means that the bank stores the customer’s Bitcoin on-chain, and Custodia stores its private keys in a segregated account. This differs from omnibus custody models, which commingle customers’ digital assets. Long wrote in a white paper published by Custodia that most of the bank’s competitors use an omnibus structure.
“It is exciting for this team to bring a truly new Bitcoin custody service to the U.S. market, both in terms of its technical architecture and regulatory benefits,” Long said in an email. “Strict separation is the most customer-friendly design for any Bitcoin storage platform, and that’s what it’s all about.” [Custodia] is now available. ”
Bitcoin storage not much progress In traditional financial markets, in part Factors such as regulatory oversight, the infamous FTX collapse, Sam Bankman Freed’s recent fraud conviction, and the collapse of several crypto-related banks in the spring.Custodia is War with the Federal Reserve It has been sued in court since last summer for access to the central bank’s payment system, but was rejected on the grounds of inexperienced management, risky business model and over-reliance on cryptocurrencies.
Consultant Alex Jimenez said the launch of Custodea’s institutional Bitcoin custody platform will take a long time, but added that it is unclear whether Custodea will be able to prove the need for the service. .
“What will be interesting is how successful they are,” Jimenez said. “Will companies invest in Bitcoin?…It all depends on the risk appetite of investors.”
But Long envisioned Custody as a solution to market problems, saying it would provide a secure bridge between traditional finance and digital assets.
“The whole concept of online banking, not to mention digital assets moving at the speed of light, has revolutionized risk management in the banking industry,” Long said in an interview in May. “So we need to bridge this issue very carefully to ensure that digital assets do not cause a run on the traditional banking system.”
Regulatory vigilance and lack of clarity have also deterred most traditional financial institutions from offering Bitcoin custody services, Jimenez added.
BNY Mellon announced plans last October to start offering cryptocurrency custody to some customers, but most Major banks such as Citi, JPMorgan Chase and Wells Fargo are working on digital assets in a variety of ways, including tokenization. HSBC announced this week Starting next year, the company will offer custody of tokenized securities through Metaco, a technology company owned by Ripple.
Jimenez said the industry is eyeing custodians, and if institutions demonstrate enthusiasm for Bitcoin storage and further guidance from regulators, more participants could follow. Ta.
Mr. Long has been active in pushing for further cryptocurrency regulation, particularly in Wyoming. The Cowboy State created the Special Purpose Depository Institution Charter (SPDI) in 2020, allowing banks like Custodia to provide services such as custody of digital assets.
Now that Custodia has launched its platform, Long said the team will continue to build banking APIs and services. He declined to provide metrics on how many customers are using the storage service.
“Our goal is to meet the market need for a custodian bank that can simplify operations and reduce risk for customers by providing custodial services for both USD and Bitcoin,” Long said. .
