Transcription
So, you've done your homework and you know what to do. You've got your assets off of exchanges. You've got them on a cold wallet and you're wondering, is this the best thing that's out there to be able to store my crypto for the long term? And I would challenge that. I would say that it's not. And I think that we're going to move in a direction where institutions step in here and you see institutional custody take over.
So, that's what we're going to run down in this video. So hang around so you understand everything that you need to know about institutional custody for your digital assets. Okay.
So there's all these different providers. People are confused. Is it Medico? Is it Firebox? Is it Copper? Is it Standard Custody? Is it Anchorage? Is it Gemini? Is it Coinbase? There's so many players out here that are providing institutional custody or say they provide institutional custody. And what is institutional custody? There's not really a definition at this point, but I'm going to give you my definition, and it's comprised of five things.
One, crime insurance, cuz that's the biggest piece for me. I want to know that my assets are insured because you don't get that with a cold wallet. Like, why else would you be paying or working with somebody for the additional benefits if you weren't going to get that piece? So, number one, crime insurance. And you need to ask if it's crime insurance because they can say it's insurance. Firebox has insurance, but it's on the infrastructure, not the assets. So if they're hacked, you know, if if you're defrauded, if somebody, you know, gets your stuff somehow, and a lot of this, you know, on the back end is much more robust than just the seed phrases in your cold wallet. But there are still ways that it can have exposure, and you want to make sure you're covered. So crime insurance is number one.
Number two, is it bankruptcy remote? We've seen so many people get caught up and lose their digital assets because things weren't bankruptcy remote. They were co-mingled. You're in an omnibus account at an exchange that goes bankrupt. And guess what? You're a creditor. They owe you those assets back. We see this with FTX. We've seen it with Celsius. We've seen it with Voyager and everything that went down in 2021. And unfortunately, a lot of people just lost their digital assets. They got some cash back but not the assets or the appreciation that's happened in that time frame. And so you want to make sure that where you're holding your assets is bankruptcy remote. You are not a creditor of that counterparty. They're not a bank. They don't owe the assets back to you.
You want to make sure that it's segregated, never comingled. You want it separated out. You want your own account at that institutional custodian separate of other people. So your assets are not comingled. They're in a specific wallet separate under your account or sub account depending on the institutional custodian where they belong to you. They're for the benefit of they are still your assets. Again, you're not a creditor of the institution, but you want those assets separated out away from other people.
Additionally, number four here is that they are licensed in the jurisdiction that they're providing these services. So, let's say it's in the US. They've got a bank charter or they have some other things and other ways that they could be able to be licensed here in the US. Bank charter is kind of the highest of those pieces. It's the most regulated. It has the oversight by the by the OCC, but you could still be a qualified custodian through a few other means. You could have licenses. You could be licensed with a bit license from New York guideline that they require for anybody to provide custody for digital assets. Many people like Coinbase and Gemini, Axos Trust, and a few others here in the US do have that qualification and meet that requirement in order to be a qualified custodian here in the US.
And then last, you're going to make sure that they have audits and that they meet the FIPS, the federal information processing standards that are here in the US. So FIPS, federal information processing standards, which requires that institutional custodians utilize HSM or hardware security modules and not MPC technology. You want to make sure that there's physical hardware that's holding these keys that are encrypted and sharded and held from across multiple locations. And most of the time, these HSMs or hardware security modules are in level four facilities, military grade facilities. They've got no access points. They've got armed guards and barb wire and all the things that you would imagine for a level four facility. They have a physical piece of hardware there that holds the encrypted sharded key to your wallet. So very specific here and again there are many custodians in the US that do provide this but there's a few providers out there that don't meet all of these standards and that's what we're going to talk about here.
So again, you know, kind of back to the beginning, a lot of people hear conjecture about Fireblocks as institutional custody or Copper as institutional custody or, you know, what's now Ripple custody, which used to be Medicco. They made that acquisition back in '23 and now they've rolled that into their suite of services there at Ripple. Do they have HSM on the back end? Fireblocks does not. Neither does Copper. Both of these are great for FinTechs and exchanges and people that want to provide exchange type services or a light level of custody without all the other benefits and protections that a consumer or an institution or a company that's managing a treasury would want to have in place. So, if you're partnered with somebody that has just Copper or just Fireblocks, they're not going to meet the requirements here in the US to actually be a qualified custodian. You're going to be required to have that HSM component of that. So, just be aware of that. And it's much more robust in the security and that's why that's required in order to meet those qualifications and be a qualified custodian here in the US. There might be other jurisdictions where that's not required, but the US is, you know, one of the most financially stringent jurisdictions on the planet, second to really Australia if you actually have a license in Australia.
So, you know, when you're working and and vetting these people as your assets appreciate, because I do think that they will during this bull run and this cycle when utility finally, you know, moves in here, you want to make sure that you're working with the right people and your assets are protected. And so again, that's what this video is about, explaining what institutional custody really is. So, let's get into some of the people out there that provide institutional custody and what jurisdiction they operate in and and who you might be looking at if you did want to, you know, eventually hold your assets somewhere.
One of the early movers from the TradFi side or traditional finance has been Fidelity. Fidelity provides custody for people that hold Bitcoin and ETH and USDC. And that's really all they do. And then you also have Kraken that's moved into the space and they are very similar, just those three assets. They don't really have a broader scope of assets that they provide that to. And the reason for that is well, there's not a ton of liquidity or demand for a ton of other assets. I think that'll change. You know, a lot of people here that watch this channel are invested in specific assets that we believe will do very well on the other side of regulation and the implementation of this technology and there'll be much more liquidity in those assets and I think you'll see many more services that will be offered for those digital assets in the future.
Many of you may know we have an SEC registered RIA, which is Digital Wealth Partners, underneath the umbrella of companies that we have that is an RIA. It's an SEC registered investment advisor here in the US and we provide institutional custody for our clients through Anchorage, which is a federally chartered bank here in the US. We've just seen Ripple apply for their banking license to be regulated by the OCC. Uh, and they have Standard Custody, which provides institutional custody for their clients at Ripple and some of the other people out there that are holding certain assets. BlackRock uses Anchorage for their institutional custody, for their ETFs. Most of the other people use Coinbase here in the US for their institutional custody for their, you know, spot ETFs that they're holding. Most of that's Bitcoin, some ETH at this point, obviously. And as we get more ETFs that come onto the market, I think that you will see more of these custodians kind of step in. Maybe Kraken, maybe Gemini, a lot of the names that you're going to know, but these are people that do have the qualifications in order to support those and provide those services. But you're only going to get the best of the best that are going to support the ETFs, people that do have the licenses, the backing, the insurance, the segregated bankruptcy remote insured accounts that institutions and enterprises are going to want. And they want the additional protections and benefits that that provides.
So again, you know, there's a lot of players out there. If you're international, you might be looking at Zodia. They are an institutional custodian and they do provide custody services, but they leverage Ripple custody on the back side of that, which does have HSM. I think that they have a fantastic product offering. They're working on the ability to work with US citizens. They don't quite have the licenses here yet, but they do have licenses in other jurisdictions. Comply is another one and Hex Trust is another one. They use cold wallets on the back end of their stuff. Not quite as robust of security in comparison to what's offered by other institutional custodians, but they do have the licenses in other jurisdictions.
So again, if whether you're international or here domestically in the US, the US market is much more competitive in comparison to the rest of the world, which is interesting because we seem like we've been behind in the adoption of this asset class, but in reality, a lot of these institutions have been gearing up for this for a long time, moving things in place in the background and positioning themselves to be able to provide these services for corporations and other institutions and financial products as they are rolled out.
Again, five things, right? We want crime insurance, bankruptcy remote, licenses, we want segregated accounts, and we want audits, and we want it to be FIPS and meet those standards with HSMs. So, if we got those five things, that's going to allow well, that's my definition of what institutional custody is, and I am probably operating at a much higher standard than other people. Again, with the US being a fiduciary, we have a lot of responsibilities to our clients, and we want to make sure that we're providing the highest level of service and partners that we can possibly have for our clients.
Hopefully, this gives you a better understanding of who the providers are out there, what they actually provide and helps you vet people in the future as your assets appreciate and you want to hold them in institutional custody and get them off of that cold wallet that doesn't have your spouse on it, doesn't have beneficiaries, doesn't have insurance, and has potential exposures for you to get fished or or your assets to be lost if you lose those keys. Right? And again, those are a lot of reasons that I think people will migrate toward institutional custody as it becomes much safer to hold your assets with these fiduciaries and we know that it's going to be bankruptcy remote and you're not going to have those issues like we did in 2021.
Are there going to be new competitors that come into the market? Are the people that are here going to get bought by institutions? Is this going to completely change the way that securities are held in the future? I think it will. As we get tokenized securities, I think these are going to be requirements for that asset class as well.
And with that, we'll wrap it up. Hope you enjoyed this video. If it's something that's caught your attention and you want to know more, we've got a full breakdown in the PDF that we've attached in the show notes here. And if you're a member of the Beyond Broke Mastermind, this is going to be one of the resources that you have access to along with the other entire library of resources that we've put together for people there. And if you want to check that out and be a member, it's one month for free. You can use the code BEYONDBROKE all capitalized, the number one, and then M O, to get you a free month there in the community. And again, that link will be down in the show notes so you can access it either through this video or in the library there for the Mastermind. And we will see you guys on the next.