Why Family Offices Should Care About Digital Asset Custody

The digital asset industry is not one that is stagnant. Beyond the perennial excitement induced among enthusiasts and users due to the volatile price movements of the assets, the industry is no stranger to eventful occurrences. Most recently, the US SEC (Securities and Exchange Commission) approved the issuance of Bitcoin ETFs (Exchange Traded Funds) for a handful of prominent asset management and financial services companies.

The move pushes the crypto industry towards institutionalization, with multiple jurisdictions worldwide already regulating or working on implementing regulations for all kinds of digital assets beyond Bitcoin. As the industry matures and the innovation evoked by the asset class attracts retail and institutional investors alike, its institutionalization is the only logical step ahead.

The Good Comes with the Bad – Still, the Industry Grows

Beyond those desired happenings, the industry has also been prone to setbacks. For example, the recent Binance debacle saw the company shelling out over $4 billion in fines due to its negligence in reporting and preventing transactions serving money laundering. Another example is the infamous FTX saga that led to collective losses in the billions for crypto users due to the blatant mismanagement of funds.

Regulations will ensure such failures do not occur, keeping digital asset investors and users safe from untoward incidents. Nevertheless, despite the setbacks, the development of innovative products from this space remains strong. Digital assets, alongside a vibrant DeFi ecosystem and robust centralized platforms offering asset storage and exchange activities, among others, are booming.

Family Offices Are Showing Unwavering Interest in Digital Assets

A rapidly evolving digital asset industry is witnessing massive influxes of funds, now more than ever. With the capabilities it offers to build massive wealth and regulatory perceptions shifting towards the positive, one group of investors flocking to the ecosystem is family offices. Servicing HNWIs (High Net Worth Individuals) and wealthy families to build and maintain generational wealth, family offices are diversifying investment strategies to accommodate digital assets.

However, their entry into the crypto markets should occur with the assistance of platforms specializing in handling the large value they pour into these assets. Family offices must turn to digital asset custodians working to safeguard users’ assets from the various elements in the ecosystem that can lead to their loss or theft.

Custodians Make Digital Asset Usage Safe and Convenient for Family Offices

In fact, jurisdictions rolling out regulations for the asset class are mandating the usage of licensed custodians while dealing with large amounts of assets. And that is for good reason. For one, self-custody wallets aimed to secure digital assets are a good choice for retail users dealing with less significant amounts.

On the other hand, interacting with such assets in the millions of dollars, as family offices do, can be inconvenient and dangerous when using self-custody storage solutions. The chances of losing private keys and having assets worth millions trapped forever are more common than assumed and obviously not ideal.

Turning to experienced custodians, like BitGo, Liminal, and Copper, is the best way for family offices to go. These custodians offer the perfect balance of security and convenience that they can ask for. Licensed custodians utilize state-of-the-art asset storage and data transfer infrastructure, ensuring the digital assets they handle remain safe. Hot and cold wallets protected by Multi-Signature and MPC (Multi-Party Computation) technology are commonplace with custodians, alongside infosec certifications attesting to their robust infrastructure.

Increased Access to the DeFi Ecosystem Through Custody Platforms

By turning to custodians, family offices can stay assured they possess instant access to their assets, overseen by bank-grade storage security. Of course, asset storage is only one aspect of custodian offerings. Custodian platforms also come equipped to let their users indulge in DeFi strategies across various blockchain networks – all from their platform interfaces.

With the DeFi ecosystem being one of the most prominent use cases of digital assets, family offices naturally utilize the assets under their management to earn steady passive income. So, family offices can indulge in multichain DeFi ecosystems, purchasing all kinds of tokens to put to work in applications deployed on prominent blockchains from well-known third-party custody platforms.

Custodian Insurance Removes All Worries of Dealing with Third Parties

While relying on third parties to hold crypto assets can seem daunting, especially when blockchain tenets dictate doing away with intermediaries, reputed custodians bring unfaltering trust. It is so because licensed custodians come insured to protect their users from worst-case scenarios like hacks, exploits, and bankruptcies.

Family offices can confidently employ custodians, knowing their value is recoverable through insurance despite losses incurred due to negligence or bad behavior exhibited by custodians.

Reputed Custodians Uphold Compliance Even for Their Clients

Numerous jurisdictions with established digital asset regulations enforce insurance on custodians to safeguard investors. They also enforce AML (Anti-Money Laundering) and CFT (Countering the Financing of Terrorism) protocols upon these platforms, which is a need in the digital asset ecosystem. Such protocols prevent family offices from accidentally indulging in prohibited tokens like privacy coins and interacting with sanctioned wallets linked with illicit activities.

Tapping into custody services can make sure family offices remain within legal bounds and do not have their operations, funds, and investments jeopardized. Likewise, custodians can even effect good behavior among family offices, mainly multi-family offices handling investments for multiple HNWIs and families. This type of family office is operated by third parties, rather than the traditional single-family office set up and controlled by HNWIs or families themselves.

Most jurisdictions have lax regulations over family offices, meaning the clients of multi-family offices will find their value at risk if the third parties misappropriate said value. Custodians storing end client digital assets on behalf of such offices are mandated to track and report suspicious movements of funds by regulators.

Malicious activity can easily be detectable when huge sums are misused, protecting investors from bad actors. Thereby, custodians offer a layer of transparency and accountability. Multi-family offices looking to increase their credibility with end clients interested in digital assets must employ custodians.

Custody Solutions Are a Necessity for Crypto-Inclined Family Offices

Digital asset adoption is in full swing as investors turn to the asset type and the innovative products it is central to. Family offices are the same as these assets, as they have shown their ability to steadily bring returns that magnify wealth, often more effectively than traditional assets.

As they take a more influential place in the portfolios of HNWIs and wealthy families, custodians can help alleviate the issues with handling them. Thus, family offices should consider custody-related solutions to traverse the digital asset landscape securely and conveniently while making the most out of the novel financial system.