To attract institutional money into the cryptocurrencies market, the incumbent players will have to adapt and cater to them rather than expecting institutional investors to change their standards.
One area in particular that crypto is not up to standard for institutions is the custody of assets. It is the biggest chink in crypto security at the moment that has prevented institutional money from entering the arena. In the traditional markets, reputable firms such as JPMorgan, Citigroup and BNY Mellon act as qualified custodians for billions of dollars worth of securities, holding stock certificates on behalf of shareholders and issuing dividends for many different securities. In the cryptocurrency market however no "qualified custodian" has yet emerged.
Building the bridge for institutions to make a secure, compliant transition into digital assets is Komainu, a new digital custodian venture between Japanese investment bank Nomura, security business Ledger (creators of the Nano S wallet), and Global Advisors, the parent company of CoinShares.
“By bringing together financial industry experts and digital asset security leaders, our new venture will provide, for the first time, services and solutions built for business." - Pascal Gauthier, president of Ledger
Where Komainu differs from incumbent custodian services is its combination of financial market experience with the Ledger Vault, a turnkey SaaS hardware/software suite that allows for cold storage of multiple currencies, multiple signatures and time locking.
Pascal Gauthier, president of Ledger, believes that Komainu, “by bringing together financial industry experts and digital asset security leaders, our new venture will provide, for the first time, services and solutions built for business.”
The current cryptocurrency exchange setup is arguably also very unsuited to institutions. Even in markets where liquidity is quite high the withdrawal or transfer between exchanges can take days, not to mention the multiple crypto/fiat funded accounts needed across exchanges to trade the assets - and the counterparty risk involved in doing that.
So a prerequisite for any custodian in safekeeping institutional assets is a big balance sheet, something that Nomura Group, a NYSE-listed company, and Global Advisors can offer through Komainu. Based in Japan, Nomura offers broker services and both institutional and retail financial services across 30 countries.
As the parent company behind CoinShares, Global Advisors has a team with a wealth of experience in commodity trading, hedge funds, FX trading and exchange-traded products. At the helm is Daniel Masters, a veteran commodities trader and former head JPMorgan’s energy trading business, who originally co-founded Global Advisors as a commodities fund before becoming involved in bitcoin.
Global Advisor’s Bitcoin Investment fund (GABI) has the acclaim of being the world’s first regulated bitcoin fund, launched in 2014; and since 2017 the CoinShares platform has been offering a portfolio of crypto products, including the exchange-traded bitcoin notes (COINXBT and COINXBE) and two ether ETNs (COINETH and COINETHE).
Jean-Marie Mognetti, co-principal of Global Advisors, said the company has been researching a robust custodian solution for the past 6 years:
“This partnership is a progressive stepping stone towards the creation of the necessary prerequisites for further growth within the digital asset ecosystem. This will open new and exciting opportunities to global participants and contribute to move digital asset closer to mainstream offerings.”
*Disambiguation: An earlier edition of the article ran the headline "CoinShares teams up for custodian solution for institutional investors". However, this has been changed to clarify that it is CoinShares' parent company, Global Advisors, who are behind the new custodian venture.