• FTX’s collapse has led to a greater focus on regulated custodians.
• The crypto custody revenue opportunity could grow to $8 billion by 2033 from less than $300 million today.
• There is a large revenue opportunity for crypto firms and banks to provide Wall Street-like custody, market-making and prime brokerage services to new crypto investors.
The recent collapse of the crypto exchange FTX has caused the crypto industry to take a greater focus on the use of regulated custodians. According to a research report from Bernstein, the crypto custody revenue opportunity could grow to an impressive $8 billion by 2033, up from less than $300 million today. This would be driven by an increase in institutional participation in digital asset markets.
Analysts Gautam Chhugani and Manas Agrawal commented that “Crypto custody is the foundational enabler for institutional adoption”, noting that it is a technological endeavor that is focused on securing the private key. They expect to see a jump in penetration of crypto custody with existing investors, as well as a sharp growth in custody services due to the increased institutional presence in the digital asset space.
At the same time, market making is likely to increase as institutional participation grows and as there is an increased demand for liquidity in large-cap coins and less popular tokens. Market makers are essentially brokers who facilitate liquidity in a market by providing both bids and asks for a given asset.
Furthermore, there is a large revenue opportunity for crypto firms and banks to provide Wall Street-like services such as custody, market-making, and prime brokerage services to new crypto investors. Prime brokerage services are essentially the provision of services to large investors such as hedge funds, which can include access to capital, liquidity, and analytics.
Overall, the report from Bernstein highlights the growing importance of crypto custody services in the digital asset space and the increasing revenue opportunities for firms that can provide these services. As institutional participation in the digital asset space continues to grow, so too should the demand for these services, which could lead to significant growth in the crypto custody market in the coming years.