What is Custodian?

A custodian plays a pivotal role in securely managing assets on behalf of institutions or individuals, serving various purposes.

Understanding Custodian

A financial custodian is an entity entrusted with the physical custody of your financial assets, commonly held by brokerage firms, commercial banks, or similar organizations for simplicity and protection.

These financial custodians, often referred to as bank custodians, wield tangible authority over various financial accounts, encompassing checking, savings, money market, and 401(k) accounts. Any funds you deposit into an account result in an immediate acknowledgment by your custodian through your designated account number.

Beyond Asset Safeguarding

Custodians offer additional services such as transaction settlements, account management, collection of dividend and interest payments, foreign exchange transactions, and tax assistance. The associated costs vary depending on the range of services sought, with some companies imposing quarterly fees based on the total asset value under their custodianship.

Entities acting as custodians are typically large and reputable organizations entrusted with safeguarding assets and securities valued at millions or billions of dollars. Custodians are often employed by investment advisory firms to secure the funds they manage for their clients.

Delegation of Authority

A custodian may also be granted authority through a power of attorney, enabling them to make decisions on behalf of the client, such as altering investments or handling bill payments.

Example of Major Custodian Banks

Major custodian banks in the United States include The Bank of New York Mellon, JPMorgan Chase, and Citigroup, while globally recognized custodians encompass The Bank of China in Hong Kong, Credit Suisse, UBS in Switzerland, and Deutsche Bank in Germany.

Cryptocurrency Custodian

In the realm of blockchain, custodial services predominantly target institutional investors with significant cryptocurrency holdings. These custodians in the crypto space are exchanges responsible for storing cryptocurrency wallets for their users.

Different with Fiat Custodianship

Storing cryptocurrencies differs from fiat currency due to the contrast between physical and digital nature. While banknotes are physically stored and retrieved, digital currencies like Bitcoin and Ethereum rely on blockchain for storage and retrieval. Cryptocurrency custodians secure software, hardware, or hot wallets provided by cryptocurrency exchanges.

Cryptocurrency custody solutions offer comprehensive security and storage systems designed to safeguard digital assets, primarily catering to institutional clients with substantial cryptocurrency holdings. These custodians typically employ a combination of hot and cold storage methods.

Also Read

What is Asset-Based Lending & its Advantages?

What is the Market in Crypto Assets & What is its Role?

Understanding Support and Resistance: The Key to Successful Crypto Asset Trading

Closing

Despite being in its early stages, the cryptocurrency custody sector is witnessing increased competition. While established players dominate the market, emerging entrants and smaller financial firms are expanding their presence. Notable providers include BitGo, Coinbase Custody, and others.

DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.