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Report: slow progress in the cryptocurrency storage sector

In its major survey of vendors in the cryptocurrency storage sector Digital Assets Custody finds limited progress in this area since 2019.

Cryptocurrency storage solutions are lagging far behind

Digital Assets Custody (DAC), a Hamburg-based company, offers consulting services for storing cryptocurrencies. The company published its first major report on storage solution providers and their offerings in 2019, and has just released its second edition.

In the 2020 survey, the DAC is again trying to identify trends and challenges facing the storage sector. It found that almost all providers have improved their core offerings since 2019, and the industry as a whole is growing. At the same time, the DAC States that this sector is still in its infancy and, as in 2019, is characterized by a wide range of offers with little or no agreed definitions and terminology, as well as without standard pricing strategies.

In terms of regulatory approaches, the uncertainty that has slowed progress in the broader blockchain and cryptocurrency sectors has similarly affected the storage space. Indeed, 43% of respondents said that their activities are not regulated by any financial authorities. Of the 46 percent who said they were regulated by a financial authority, the prevailing approach was for custodial providers to accept that they were part of the existing financial services sector.

In this context, reference is made to financial services supervisors such as the German Federal financial Supervisory authority, the Swiss financial market Supervisory Authority, and the UK financial Supervisory Authority.

Most participants identified that regulatory harmonization issues related to licensing and compliance are still a major challenge in 2020. The report notes that this standard dependence on existing financial authorities in terms of management and supervision contributes to the entry of established organizations into the cryptocurrency storage market, rather than crypto-specific startups, since they already have the necessary infrastructure and procedures in place.

Additional insurance for cryptocurrency deposits

Additional insurance for cryptocurrency deposits

While deposits in Fiat banks are guaranteed by the state in most jurisdictions: for example, the FSCS in the UK and the FDIC in the US, there is no such government insurance coverage for cryptocurrencies. In this regard, the DAC reports that there is a positive momentum in the crypto storage industry, with 70 percent of vendors confirming that they have at least some form of insurance coverage (up from 57% in 2019). Despite this, the report notes that most providers have refused to disclose the limit of their insurance coverage, so depositors should still conduct their own due diligence regarding the level of insurance coverage when choosing a custodial provider.

As for who is in the market for cryptocurrency storage solutions, the survey shows that providers target services to the following groups:

  • asset managers 86%;
  • exchanges 81%;
  • traditional banks 81%;
  • individuals with an ultra-high capital of 50%.

In its conclusion, the DAC States that it expects significant changes and some consolidation in the sector in the future, with increased regulatory confidence the main driver for adoption.