14th August 2023 > > Custody.

tl;dr

Custodia Bank brings custody issues to the fore once more.

Market Snap

Market Wrap

The price of ETH has not changed since the market snap of 10th August, whilst BTC has not moved since the market snap of the 11th. This is quite extraordinary and will probably never happen again.

Curious Cryptos’ Commentary – Custodia Bank

Custodia Bank has announced that it is now taking USD deposits in some – not all – US States for institutions only at this stage.

The bar to becoming a federally mandated bank in the US is set very high, an example perhaps of how large, and well-established, incumbents lobby politicians for rules and regulations purportedly designed for consumer protection, but which often stray into the territory of mounting nearly insurmountable barriers for new entrants. The EU’s Common Agricultural Policy, a policy that condemns African farmers to a life of subsistence, is perhaps the most egregious example of this at work.

Custodia Bank’s ambitions extend beyond the fiat world.

CEO Caitlin Long explains:

“Custodia has always believed the custodians in this industry (the crypto industry) will ultimately be banks – for the same reasons that the custodians in the securities industry are banks, not trust companies or other non-bank entities.”

Custodial services for institutions and retail are a prerequisite for wholescale crypto adoption. Back in the mid-80s, we all remember when The Bangles topped the charts with “Walk Like an Egyptian” (https://www.youtube.com/watch?v=Cv6tuzHUuuk). This was the time of my first foray into share ownership that came with a paper share certificate in the post. Though not quite as archaic as a bearer bond, the process for proving your ownership if you lost that share certificate was almost as tortuous as trying to replace a carte grise in France today. Which - now I am trying to do for the second time in my life – I can assure you is as painful a piece of bureaucracy as you can imagine. The first attempt resulted in me, faced with civil servants’ intransigence, having to scrap a perfectly decent car. I really don’t want that to happen again.

But I digress.

The dramatic growth in retail share ownership could never have happened if paper share certificates had not been replaced by the electronic equivalent. The predicted growth (at least by me) in crypto ownership can never happen unless self-custody is replaced by centralised custody.

Custodia Bank wants to become the custody provider of choice for institutions who wish to invest in cryptos.

We all wish them well.

Curious Cryptos’ Commentary – And talking of custody

The crypto custody market was estimated at $223 billion as of January 2022, up from $32 billion in January 2019. Compounded annual growth rate is predicted to be over 26% through to 2028, which in my view, is a major underestimate.

I cannot stress enough the importance of centralised custody to the wholesale adoption of cryptos, though I must do so over the screams of anguish and pain from the maximalists, who wish to keep the benefits of blockchain technology to themselves, and out of the hands of the little people, at least in their eyes.

Here’s a neat little eight pager which is a decent enough summary of this important topic:

https://s201.q4cdn.com/666322591/files/doc_downloads/2023/05/Tech-Talk-4-Crypto-Custody.pdf

Curious Cryptos’ Commentary – Bakkt Custody

Just last week Bakkt Custody released its Q2 2023 earnings report:

https://s201.q4cdn.com/666322591/files/doc_financials/2023/q2/20230810-2Q23-Bakkt-Earnings-Presentation-vFinal-edit.pdf

Bakkt is regulated in New York as a trust company, a structure referred to above by Caitlin.

Putting aside the financials, the interesting bits in this earnings report are quotes like these:

“Significant increase in new client activity”

“Successfully signed new clients; late-stage negotiations with multiple prospects in mining, family office, registered investment advisors and corporate treasury industries”

“Qualified sales opportunities up ~10x in 1H23 vs. 2H22”

These are not just sales and marketing claims – these are statements made to support audited accounts. And they paint one very clear picture – the pace of institutional adoption of cryptos is accelerating by the day.