The Rise of Regulated Custodians

In the last year, we saw monumental crypto and bank failures lead to a loss of belief in crypto and traditional finance. After numerous setbacks, no one wanted to touch crypto, but there is an end to every cycle. From the ashes of this challenging era, the industry has risen again. Institutions have revealed their long-term plans for crypto.

Just after Laser Digital released their latest survey demonstrating a significant jump in institutional interest in crypto, the world’s largest asset manager, Blackrock, filed for a Bitcoin ETF. The news brings new interest, capital, and participants to the industry.

A flight to safety has begun. Investors worldwide are seeking responsible, secure crypto storage. We have found that when investors arrive at BitGo, they want to know two things: Is my money safe? Can I access it whenever I want? The answer to both questions is yes. Regulated custodians have one job — keep the assets safe.

What is Regulated Custody?

Regulated custodians may offer several services that provide extra security:

• Segregated accounts: funds are never commingled or used for other purposes.

• Remoteness from bankruptcy: funds are protected if the custodian experiences financial instability.

• Cold storage: keys are stored offline and away from malicious actors.

• Security technology: multi-signature cold, key sharding, and offline signing.

• Redundant human processes: trust officers review transfers when value thresholds are triggered.

• Insurance against theft, loss, or misuse.

In traditional finance, custodians can only call themselves a custodian if they meet specific regulatory standards to ensure the safekeeping of client assets. In crypto, custodial services range from software solutions to fully licensed and regulated cold storage in a class III bank vault, like that provided by BitGo Trust.

Digital asset investors naturally assume that anyone custodying their assets will act in good faith. 2022 taught retail and institutional investors this is only the case when you’ve sought out a regulated custodian. Check out our guide on evaluating a regulated custodian.

Embracing Regulatory Clarity

The fallout from 2022 led regulators to take a more central role in the industry, including attempting to define the status of different assets. Recent lawsuits against large cryptocurrency exchanges drove concerns over the industry’s future. However, regulatory action provides a much-needed opportunity for crypto to receive the clarity it deserves.

For example, the SEC’s recent proposal that registered investment advisors be required to use an independent, regulated, qualified custodian is prudent and good for the digital asset industry. These types of regulation can provide investor protection, systematic risk management, stability, and/or market integrity.

As new financial technologies emerge, regulators must keep up with the pace of change to protect market participants. Despite the uncertainty cast by recent regulatory pursuits, this process will ultimately lead to greater clarity and more robust digital asset markets.

BitGo’s role through the regulatory clarification process is safeguarding assets for our clients. The secure and reliable management of assets is a key component of healthy financial markets. Using regulated custodians eliminates single points of failure by separating trading and investment activities from custodial activities. Separation of duties helps evolve a more efficient, sensible market structure over the long term.

Code is Law, Security, and Revolution

Crypto transformed simple lines of code into a worldwide security revolution. No matter how large or small your account balance is, everyone has the same security tools available to them. The work that needs to be done now is finding the balance between innovation and safety. Our industry has encountered adversity often on this path, but it always brings out the best qualities as we persevere and continue building.

BitGo believes that clear regulatory frameworks will advance the upward trajectory of crypto and we will be here to provide trust in digital assets to those that need it.

What BitGo Offers: Trust & Security

Our mission is to safeguard client funds and bring trust to digital assets.

We operate multiple, regulated trust companies in the US and abroad, which serve as qualified custodians. Those entities have a fiduciary responsibility to protect client funds, which are segregated, bankruptcy-remote, and never rehypothecated.

We offer non-custodial hot wallets and custodial cold wallets. All BitGo wallets work on a “2-of-3” basis, meaning they come with three keys (client key, platform key, and backup key), two of which must be used to sign any transaction.

We believe this model best serves our clients — and the industry, as well. To learn more about how we operate and our point of view, please reach out to our team.