To say that a lot is happening in the crypto space is an understatement. In the past few years, crypto markets have weathered some of the most challenging economic conditions in a generation with a global pandemic, record inflation and, most recently, war in Ukraine. Interest among mainstream investors continues to grow, and experts predict that the values of Bitcoin and DeFi will rise rapidly in 2022. With the Crypto Assets Conference (Frankfurt) wrapping up last week and the Paris Blockchain Week Summit ahead this week, it seems an apt time to delve into crypto under the family office lens.
Despite its growing popularity, crypto is still in its infancy, as is family office investing in this space. According to a recent Simple poll of family offices and their advisers, it remains difficult to navigate, with 54% of respondents admitting a lack of understanding of crypto.
Being aware of this fact is vital not only for family offices that may need to recruit specialized assistance in this field but also for vendors dealing with family offices in this space. While family offices have investing power akin to institutions, they often lack the sophistication of these. Varying degrees of professionalization and sophistication are evident. This spans internal teams, processes, structure and strategy. Different decision-making processes and motivations for investing are also present and worthy of consideration.
Given the distinct needs and considerations family offices have when evaluating exposure to cryptocurrency and the challenges this presents for crypto vendors in this space, Simple’s 2022 Cryptocurrency Review has been designed with this in mind. It examines the technology underlying cryptocurrency, the ecosystem of service providers with particular attention to crypto custodians, and common strategies within this growing and dynamic space. Here’s a quick roundup of some of the key points covered.
Three main family office crypto needs
When it comes to crypto, family offices have three main requirements:
1. Storage and safekeeping
Once the decision has been made to purchase cryptocurrency, family offices require a path to on-ramp fiat currency, complete transactions, and a place to store their new asset. Crypto exchanges and brokers facilitate cryptocurrency transactions, and crypto-wallets enable storage.
Family offices face heightened regulation, due diligence, and demand for higher security than retail investors and require the infrastructure to store significant cryptocurrency assets securely. As crypto transactions are irreversible, security is a significant concern. According to Andrew Howard of Bitcoin Reserve, the biggest concern that family offices have is about custody, and the most common question is, “Where should my family office store our Bitcoin?”
The review aims to help family offices answer this question. It explores cryptocurrency custodial solutions, examining custodians – third-party entities that store and manage customers’ assets; technology service providers that furnish clients with the technology to build their own custody solutions; and hybrid custody providers who combine elements of the first two categories. It also examines the layers required to secure digital assets.
The key outtake when selecting crypto custody providers is a threefold approach that covers consideration of regulation, insurance, and tie-ins with additional financial services as these three features combine to offer maximum security and benefit from digital assets.
2. Buying and selling
In the crypto space, buying and selling digital assets may be managed via prime brokerages and trading platforms. In traditional finance, prime brokerages are a subset of the prime services banks and financial institutions usually offer to trade groups like hedge funds or other banks. These include custody, trading and advisory services.
Despite the significant growth and value of the crypto market, it remains a disjointed ecosystem. Thousands of exchanges exist, but there are few ways to trade across them. Moreover, while execution management system (OEMS) solutions are prevalent, they do not solve the problems that prime brokerages can in mitigating risk, properly managing the custody of assets and regulatory considerations.
3. Gaining indirect exposure to crypto and digital assets
For family offices looking to enter the crypto investment arena without the burden, responsibility, or risk of custody for their digital assets, digital asset & crypto fund managers and exchange-traded funds (ETFs) may be the solution.
Fund managers offer various options from minimum investments, fee structures, and liquidity schedules to varying investment strategies. ETFs offer distinct opportunities with portfolios designed to capture the growth of blockchain technology and cryptocurrencies. These two avenues of indirect investment each afford their own opportunities.
Each of these aspects is explored in detail and there’s also a market playbook for crypto companies wanting to enter the family office segment.
Leading Crypto Companies
If you are looking for a shortlist of providers, here’s a roundup of companies that fall within either the storage & safekeeping, or buying & selling use cases:
Storage & custody providers (some include trading):
Bakkt operates a technology platform that enables consumers, businesses, and institutions to unlock the value of digital assets. The platform includes a digital wallet.
Bitcashier is focusing on bringing bespoke cryptocurrency trading services to family offices, wealth management firms, corporate institutions and banks.
BitGo offers digital asset financial services, providing institutional investors and crypto platforms with liquidity, custody, and security.
BVNK offers digital asset-powered financial services and allows its clients to manage their digital assets and fiat currency wallets from a single account, secured by institutional-grade custody and cold storage.
Coinbase Institutional is is built for investors and institutions that want to invest in digital assets. The company provides integrated solutions for custody, advanced trading platform, and prime services.
Copper is cryptocurrency custody and brokerage platform for institutional investors. Its software platform is connected to cryptocurrency exchanges like Bitfinex, BitMEX, and Binance.
Cross River provides a highly secure, API-based banking platform and comprehensive suite of products encompassing lending, payments, risk management and Banking-as-a-Service (BaaS) offerings to deliver responsible financial solutions.
Fireblocks is an all-in-one platform that helps its customers build their digital asset business. Fireblocks streamlines operations by bringing all exchanges, OTCs, counter-parties, hot wallets, and custodians into one platform.
Gemini Trust Company, LLC is a next-generation cryptocurrency exchange and custodian that allows customers to buy, sell, and store digital assets such as Bitcoin and Ether.
HAYVN is a digital asset-focused financial Institution delivering payments, trading, custody, asset management and research to its global client base.
KORE Technologies integrates customers’ large-scale systems with Hyper Protect infrastructure. This enables fully automated, digitally generated certificates of authenticity and ownership.
Ledger develops security and infrastructure solutions for cryptocurrencies as well as blockchain applications for individuals and companies, by leveraging a distinctive, proprietary technology.
Matrix provides Regulated Trading Service, Secure Custodial Service and Multi-Fiat Pairs and aims to become the most international regulated exchange unicorn in Asia.
Metamask Institutional is an institution-compliant extension of DeFi wallet, MetaMask. They provide unrivalled access to DeFi without compromising on institution-required security, operational efficiency, or compliance requirements.
Nydig offers a full suite of institutional-grade digital asset prime brokerage, execution, and custody services. The company delivers Bitcoin products across industries, from banking and insurance to fintech and nonprofits.
Paxos is a financial technology company delivering blockchain solutions for global financial institutions. Paxos’ flagship product is Bankchain, a next-generation platform-as-a-service (PaaS) blockchain settlement solution.
Qredo has also pioneered the first decentralised trustless multi-party computation (MPC) custodial network, which enables them to offer custody, native cross-chain swaps, and cross-platform liquidity access.
Riddle & Code is a European company providing blockchain interface solutions. Its hard- and software stacks enable companies to master the challenges of our digital society such as machine identity, product provenance and supply chain management.
SEBA Bank AG offers transaction banking services for crypto and fiat accounts; custody services, including military-grade secure storage of crypto assets; trading and liquidity management services for crypto-assets and fiat currency; and more.
Sygnum Bank is a digital asset specialist and the world’s first regulated digital asset bank. Sygnum’s clients can use their deposited CHF, USD, EUR and SGD to invest in leading digital assets.
Tangany is a white-label blockchain custodian. The German company offers solutions for crypto wallets and infrastructure for blockchain, including custody for both Bitcoin and Ethereum.
Zodia Custody provides custody for crypto assets, designed to enable institutions to invest safely in emerging assets that are transforming how financial markets operate.
Buying & Selling (some include custody- and other services):
BCB Group is crypto-dedicated payment services provider, serving some of the industry’s key clients including Coinbase and Kraken. BCB Group provides payment services in 20+ currencies, FX, cryptocurrency liquidity and digital asset custody.
Bequant has a breadth of products that include prime brokerage, custody, fund administration enhanced by an institutional trading platform providing low-latency, liquidity and direct market access.
Binance’s platform features an unmatched portfolio of crypto products and offerings, including trading and finance, education, data and research, social good, investment and incubation, and more.
Bitcoin Reserve offers two levels of service: Flash and Concierge. Flash serves serious beginners and investors to buy Bitcoin worth over €1,000 daily. Concierge is for HNWIs and institutions looking to buy bitcoin over €50,000.
BlockFi is a crypto-financial services company focused on harnessing the power of cryptocurrencies and blockchain payment rails to create a globally accessible, crypto wealth management platform.
Celo is a mobile-first blockchain optimised for peer-to-peer payments using only a mobile number. With an Ethereum-compatible technology, Celo is turning crypto into usable money with a multi-asset system.
Celsius The Celsius Network is a financial technology platform that offers interest-bearing savings accounts, borrowing, and payments with digital and fiat assets.
Circle has three main products – Circle account helps accelerate the growth by accessing USDC straight from the source, Circle Yield helps to allocate into a crypto-based investments, and SeedInvest provides a network for investing.
CoinFLEX resolves the settlement issues with cash-settled Bitcoin futures contracts currently offered in the market and provides high leverage methods to hedge Bitcoin and other cryptocurrency exposure.
Crypto.com is a cryptocurrency exchange app that supports trading, investing, staking, wallets, NFTs, and more. This exchange offers more than 250 different currencies.
Genesis facilitates digital currency trades, loans and transactions. Their platform provides a single point of access for digital asset trading, derivatives, borrowing, lending, custody and prime brokerage services.
Interactive Brokers offers brokerage services that focus on broad market access, low costs, and trade execution. Customers can trade stocks, options, futures, forex, bonds, and funds from a single integrated account.
Kraken is a cryptocurrency exchange platform providing both crypto and fiat trading. It also provides price information to Bloomberg Terminal.
Nexo is an all-in-one platform where customers can securely store their digital assets, as well as buy, exchange, and borrow against BTC, ETH and more.
OSL is a digital asset platform, providing Software-as-a-Service, brokerage, exchange and custody services for institutions and professional investors.
River Financial is a client-first financial institution based in San Francisco, dedicated to providing financial products and services that allow its clients to harness the vast possibilities of Bitcoin.
TROY Trade is a prime broker that focuses on crypto trading and asset management. It provides crypto brokerage services for institutional clients and traders, including spot and margin trading, derivatives, data, custody, lending, and staking.
Zerocap provides digital asset execution, insured custody and yield products to forward-thinking investors and institutions globally.
Where is cryptocurrency heading?
Crypto is a challenging space wrought with noise and hype, making it difficult to navigate. Therefore, it is vital that family offices and advisors invest time in understanding how best to meet these primary requirements to secure their investments and grow them.