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Welcome to Crypto Megabytes, a short note on a relevant issue in the crypto currencies world.

If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers.  

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Claire Cummings

020 7585 1406

claire.cummings@cummingslaw.com
www.cummingslaw.com


 

CRYPTO MEGABYTES

Firms offering institutional grade digital asset storage solutions in order
to attract more crypto investors



One of the largest problems with digital assets is the perception of potential investors that such digital asses are vulnerable to hackers and that there is a lack of secure storage solutions.  Such investor fears are not unfounded.  According to Carbon Black, a U.S.-based cybersecurity firm, around $1.1 billion of cryptocurrency was stolen in the first half of 2018.US regulations require large money managers to entrust client assets with a qualified custodian.  Traditional qualified custodians such as State Street Corp. and Bank of NY Mellon Corp. have been hesitant to hold digital currencies.  Filling a gap in the market, start-ups such as BitGo began offering cryptocurrency custodial services.  In an effort to attract more investors to the crypto market, traditional institutions such as Goldman Sachs are attempting to provide institutional grade storage solutions to attract wary investors.  Goldman, together with a venture founded by billionaire Mike Novogratz, have invested about $15 million in BitGo’s Series B fundraising, which brought in a total of $57.5 million.  Earlier this month, a Goldman spokeswoman stated that, “In response to client interest in digital currencies, we are exploring how best to serve them in this space”.  Goldman was among the first firms on Wall Street to clear bitcoin futures and has named a head of digital-asset markets to assist clients who wish to invest in crypto.  (Source: “Goldman wades deeper in crypto, betting on BitGo with billionaire Mike Novogratz”, 18 October 2018, available at https://www.bloomberg.com/news/articles/2018-10-18/goldman-wades-deeper-in-crypto-betting-on-bitgo-with-novogratz).  Goldman isn’t the only traditional firm to offer digital asset services.  Fidelity Investments recently announced that it is launching a new cryptocurrency trading arm called Fidelity Digital Asset Services, which will handle cryptocurrency trading and custody for its customers.  

Less traditional firms have also recognized the need for more secure storage options and the resultant loss of institutional investments in crypto.  Thus, they are expanding into the digital asset storage arena.  UK-based security firm G4S operates a network of prisons, provides event security and stores large amounts of cash for a number of its clients.  G4S plans to offer a “secure vault storage” service that can be accessed worldwide and offers additional security by fragmenting private keys and storing them in different locations.  G4S believes that by taking the assets offline and storing them in high security vaults they can offer protection against some of the threats to digital assets.  (Source: “UK-based global security firm G4S announces crypto custody solution”, 17 October 2018, available at https://www.newsbtc.com/2018/10/17/uk-based-global-security-firm-g4s-announces-crypto-custody-solution/).

The entrance of Goldman and Fidelity into the crypto market, together with more secure custody solutions, may entice formerly hesitant institutional investors and deep-pocketed individual investors to enter the crypto space.


 

 

This document is for general guidance only. It does not contain definitive advice.


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Cummings

Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327

Cummings Law
42 Brook Street
London Greater London W1K 5DB
United Kingdom

www.cummingslaw.com

19 12 2018

 
 

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