Investors bet billions on crypto custody providers

The safekeepers of crypto assets are attracting billions of dollars from investors betting that the influx of Wall Street players into digital markets will lead to a surge in demand for custody services.

Fireblocks became the highest valued crypto asset custodian on Thursday after raising $550m in a new funding round that put an $8bn price tag on the company. The figure matches the valuation achieved by FTX, one of the world’s largest crypto trading exchanges, which announced a $400m funding round on Wednesday.

Fireblocks has secured new investment from a group of venture capital companies, including D1 Capital Partners and Spark Capital. The deal comes after private investors ploughed $4.5bn into digital asset custodians last year, representing a fifth of total capital that flowed into the blockchain industry in 2021, according to research by Blockdata.

The inflow of capital comes on the back of expectations that large professional investors will grow their presence in the digital asset space, fuelling a market for lending, borrowing and other trading activities that require crypto tokens and coins to move around safely.

Investors have also been pouring money into the broader blockchain industry, as the abundance of private capital makes its way into the rapidly growing industry.

Custody is a key service for professional investors to be able to access digital markets, and total assets under custody grew rapidly in the past few years to stand at $223bn in January this year, according to Blockdata.

Crypto custody providers initially focused on safekeeping and storing assets such as bitcoin. But as the market has developed, custodians have evolved to act as security guards for assets moving around in the digital world, protecting coins and tokens from hackers, and ensuring that funds are safe and get to where they need to be.

Coinbase and PayPal are just two of the companies that have acquired custody service providers recently, as part of an expanded offering for professional investors.

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Fireblocks to date has handled $2tn worth of assets changing hands across 20 blockchains and 1,000 cryptocurrencies that have made their way through trading, gaming, and other digital avenues such as non-fungible tokens.

The company does not declare earnings figures, but according to Blockdata its annual revenues increased 350 per cent in 2021. Other big custody providers have also seen significant growth, according to Blockdata, with both Genesis and Ledger experiencing double-digit increases in assets under custody, while BitGo’s $64bn in assets is a rise of 492 per cent since December 2020.

Aside from significant money inflows, senior figures from traditional finance and politics have moved to companies that act as gatekeepers of the digital world. Former UK chancellor Philip Hammond last year joined London-based Copper, one of the largest crypto custody providers.