While the prospect of Wall Street entering the cryptosphere may conjure some unpleasant associations among the utopians who view any kind of centralization as an unforgivable sell-out of crypto’s core-principles, it seems like an inevitability. As we’ve discussed previously, this doesn’t have to be a war between extremist factions. There’s ample middle ground – and lots of money – for those comfortable with a ‘hybrid nature’ where hedge funds invest in crypto with the help of a digital asset custodian.
Tread Lightly – Carry a Giant Sack of Money
Huge amounts of money course through the crypto market on a daily basis, but it’s small potatoes compared to the wider financial world, where individual hedge funds sometimes handle tens of billions. What accounts for such a disparity? Obviously crypto is only one asset amongst many, and it’s a newcomer to the scene, which due to its sophisticated technological foundation, has surely flummoxed some of the old guard. There’s also the extreme volatility in the market, not just for ICOs, but for the crown jewel itself, Bitcoin. But in the end, the most significant barrier separating major investors from crypto is lack of security. It’s estimated that $400 million has been stolen from ICOs since 2015, or around 10% of the total amount raised. As the market increases, that percentage may go even higher. (E.g. the recent hack of the Typeform platform used by many ICOs.) What crypto needs is what assets have needed ever since moneylenders set up shop within gleaming walls of Grecian marble: a refuge, sacred and inviolable.
There’s Gold in them Hills
While individual security can be very strong for crypto-traders thanks to offline wallets, this method hardly works for large investment firms. Some estimate that hedge funds and others are sitting on around $10 billion, waiting for the crypto market to show signs of taking security seriously before they invest one thin dime. That money is a tantalizing prize, and Coinbase is aiming to be the one that snaps it up. Their recently released digital asset custodian service functions just as a traditional custodian bank does, but for Bitcoin, Ether, Litecoin, and other ERC20 tokens. The promise is that it will operate under strict regulatory guidelines and feature every security protocol necessary to assuage a nervous newcomer to investing. It’s hard to doubt their claims – Coinbase is a respected and widely used platform that already stores billions of dollars in assets and is many users first and only exchange. Also inspiring confidence is the bar of entry: $10 million in minimum assets with a service fee of $100,000. Their partnership with ETC, an established, SEC-registered firm, doesn’t hurt either. With astronomical quantities of money in the balance, let’s hope they come out of the gate prepared.
Coinbase sees its digital asset custodian service as a way to expand the use of crypto across the world. Whether that’s true or not remains to be seen, but one thing is for certain, a torrent of money is about to crash down on what has until now remained a small, isolated corner of the financial industry.