Komainu plans to start private testing around mid-summer, said Jean Marie Mognetti, who runs one of the partner firms behind it, Global Advisors.
“We hope to have a solution a bit more open to clients by the end of the year,” he said in a phone interview. The venture has lined up trial clients including hedge funds, a family office and an investment-management company.
Waiting on Regulators
Several startups said they’re already talking with the Securities and Exchange Commission or Financial Industry Regulatory Authority. BitGo, which acquired qualified custodian Kingdom Trust, is working to become a qualified custodian in its own right, and to get a state-chartered trust company approved in South Dakota, CEO Mike Belshe said by phone.
“We filed with them some time ago now. Hopefully it will be coming together soon,” Belshe said. “We are working with several hundred hedge funds and wealth managers” who are waiting for the approval.
Many custody ventures are working to obtain insurance to give customers a peace of mind. Some are also looking to expand into other Wall Street services, performing know-your-customer checks and directing funds to specific exchanges at customers’ requests.
BNY Mellon has been exploring a system for cold storage, keeping the keys to crypto holdings offline beyond the reach of hackers, according to a person with briefed on the matter, who like others asked not to be identified discussing confidential planning. That will be the norm for custody operations. Hot storage -- linked to the internet -- is faster but riskier.
Competitive Pressures
JPMorgan and Northern Trust also are considering ways to offer custody, but haven’t made final decisions, according to people with knowledge of their deliberations. “Northern Trust takes an extremely cautious approach towards cryptocurrencies, and we look at crypto services as part of an enterprise innovation strategy to support our clients,” a spokesman said in an email.
Custody probably won’t come cheap. Coinbase has been charging a $100,000 setup fee, plus 10 basis points per month, and requires a minimum balance of $10 million. It may take up to 48 hours to take money out of cold storage -- essentially the crypto equivalent of a vault. But as the number of options expands, prices would probably come down.
“The space is becoming increasingly competitive between the startup and the traditional players,” Lex Sokolin, global director of fintech strategy at Autonomous Research LLP, said in an email. “Regardless, the technology answer should be in the market toward end of year, and a traditional one will follow thereafter.”
This article was provided by Bloomberg News.