Fusang Investment Office has announced plans to launch a cryptocurrency custodial service called Fusang Vault for institutional investors. Will they be able to secure crypto assets in an environment rife with hacks and theft?
Fusang Investment Office Plans Custodial Service for Institutional Investors
Hong Kong-based asset management firm Fusang Investment Office is currently considering options to fill an opportunity presented by institutional investment in cryptocurrency. CEO Henry Chong announced plans to provide custodial services in “the Fusang Vault” that will both hold cryptocurrencies for institutional investors and perform routine audits. The service will likely become available during the last quarter of 2018.
Custodial Services Pose Unique Security Needs and May Lack Regulatory Clarity
Chong recognized the unique security needs of storing cryptocurrencies with a third party service in a niche that is still prone to hacks and multi-million-dollar thefts, and it is not always clear who the legitimate owner of a bitcoin wallet is:
“Digital assets are akin to bearer bonds, whereby whoever that is holding the security is presumed to be the owner, and there is no registration of ownership information of the security. Hence, the way we keep digital asset secured is of paramount importance.”
Those who have been in the cryptocurrency niche for a few years may advise against relying against a custodial service, especially if investors intend to invest long-term. Examples include the multiple hacks of exchanges such as Bitfinex and Coinrail that have occurred over the years and the possible disappearance of exchanges operated by less-than-honest owners and managers such as the now-defunct MintPal.
Details of the Fusang Vault are still scanty beyond plans to fully insure the assets stored with Fusang Investment Office. Although the firm is regulated by Hong Kong authorities, law firms such as Simmons & Simmons have noted that cryptocurrency custodial services are not yet regulated. That means any clients would have to make sure they read the terms and conditions carefully before signing up.
Demand For Custodial Services Still High
Many institutional investors lack the technological savvy needed to secure their cryptocurrency investments, so it’s understandable that they may be tempted to outsource the job. However, large banks have hesitated to provide custodial services or even have anything to do with businesses and investors in the cryptocurrency niche.
Although Fusang Investment Office has the advantage of being an early mover in the Asian market, it is not the only investment firm to recognize the opportunity presented by the gap left by banks. Coinbase has also recently expanded into cryptocurrency custodial services and claims to secure investors’ cryptocurrency holdings with multi-sig requirements for fund transfers, audit trails, and daily withdrawal limits. This may attract the attention of investors outside of Fusang Investment Office’s sphere of influence in Asia.
Should investors even trust services such as Fusang Vault and Coinbase’s custodial services? That will be up to the individual investor who may or may not be fazed by stories of million-dollar hacks and the disappearance of fraudulent services. Many institutional investors may consider the ease of use provided by third party services worth the risk if their goals do not include hodling for years and they lack the expertise needed for “DIY” storage of cryptocurrencies. If Funsang Investment Office can make good on its promise of secure storage, then Fusang Vault may be a project to watch for institutional-level storage of cryptocurrency investment.