Bernstein Says Custody Services Are the Foundation for Institutional Crypto Adoption
The collapse of crypto exchange FTX has led to a greater focus on using regulated custodians, and the custody revenue opportunity could grow to $8 billion by 2033 from less than $0.3 billion today, Bernstein said in a research report on Tuesday.
“Crypto custody is the foundational enabler for institutional adoption,” analysts Gautam Chhugani and Manas Agrawal wrote, adding that “unlike legacy custody, crypto custody is all about securing the private key,” which makes it a more technological endeavor.
Post-FTX, Bernstein expects a jump in “crypto custody penetration” with existing investors, and a sharp growth in custody services in the medium-term driven by increased institutional participation in digital asset markets.
The broker says there is a large revenue opportunity for crypto firms and banks to provide Wall Street-like custody, market-making and prime broking services to investors entering the cryptocurrency market.
Market making is expected to increase as institutional participation grows and with it demand for liquidity in large-cap coins and less popular tokens, the note said. A market maker is a firm that provides liquidity in an asset or a security.
Institutional crypto investors will also need prime broking services such as over-the-counter (OTC) trading desks, derivatives, lending and other structured products, and Bernstein estimates that this could grow to a $14 billion revenue opportunity by 2033.