PWC: Institutional Investors in Asia Turn to Third-Party Custody Providers for Digital Assets

Institutional investors in Asia are embracing third-party custody service providers to navigate the complexities of the $1.2 trillion digital asset market, highlighting the limitations of self-custodial solutions. According to a joint report by digital asset wealth platform Aspen Digital and global accounting firm PwC, there is a growing demand for institutional-grade custody solutions among family offices, high-net-worth individuals, and external asset managers. These investors seek to safeguard their digital asset holdings and explore new investment opportunities.

While self-custody solutions offer users complete control over their digital assets, they also require the responsibility of managing their own private keys for security. Due to this challenge and concerns over hacks, the report reveals that institutional investors prefer third-party custody providers for their specialized capabilities and expertise. Aspen Digital stated, "More institutional investors are recognizing the limitations of self-custodial solutions for their ongoing trading and operational needs. Instead, many institutions prefer third-party custody service providers."

Blockdata reported that as of April 2023, over 120 custody providers, including Citigroup and Deutsche Bank, are now operating in the space. These custody providers have expanded their role from safeguarding cryptocurrencies to assisting investors in navigating emerging asset classes such as decentralized finance (DeFi), non-fungible tokens (NFTs), and the metaverse, according to Aspen Digital.

Last year in its 2022 metaverse survey, PwC also discovered that 82% of U.S. executives had expected to integrate web3 into their operations within the next three years.

Duncan Fitzgerald, PwC digital assets and web3 co-lead, emphasized the importance of safekeeping assets and segregating them from client service providers' own assets. He stated, "This has applied for many years in the traditional securities industry — so I am pleased to see that there are credible options available now in the digital assets ecosystem."

Despite the demand for institutional-grade digital asset custody solutions, concerns remain regarding asset security, fragmented regulations, and comprehensive insurance coverage. Aspen Digital highlighted that digital asset custodians are addressing security risks through advanced technologies like multi-party computation, staying updated with evolving regulations, and meeting investors' expectations for insurance coverage across different types of digital assets.

The report's release coincides with increased optimism surrounding the potential approval of a spot bitcoin exchange-traded fund (ETF) in the United States. BlackRock's entry into the race on June 15, with Coinbase listed as the custodian, has sparked renewed interest. If the Securities and Exchange Commission approves a spot bitcoin ETF application, it would offer another avenue for institutional investors to gain exposure to bitcoin without the need for custodying the underlying asset themselves.