Caitlin Long announced yesterday that she is launching Avanti Bank, and seeking a charter for it to become the first bank in the U.S. to offer crypto custody services. Today, in an exclusive interview with Cointelegraph, she elaborated on why trust companies as crypto custodians are insufficient for institutional investors.
Long explains “There’s a reason why the big custodians for institutional investors in securities markets are banks – two reasons, actually – 1) unlike trust companies, banks have direct access to the Fed for liquidity purposes, and 2) the treatment of a bank in bankruptcy is clear, while the treatment of a trust company in bankruptcy is unclear.”
In addition to providing its clients with greater certainty in case of bankruptcy, “banks face MUCH higher capital requirements than trusts”, noted Long. Higher capital requirements also lower the risk of default.
She notes that “pensions/endowmts/foundtns/corps/sov wealth” need this level of financial security before entering the crypto space.
“There’s not a bank in the US that can custody crypto right now – so this means trust company custodians are the only alternative at present. But trust companies can’t offer the risk reduction benefits of direct access to the Fed.”
There is no lack of players in the digital custody space, from corporate giants like Fidelity to crypto-native companies such as itBit, Coinbase, Gemini, and Xapo. There is even a bank that offers digital custody -- Bank Frick, based in Liechtenstein.
Why custody matters?
For big institutional players to allocate some of the trillions of dollars they have under management to cryptocurrency, they need to have custodians that they — and their investors — can trust. To instill this trust, a crypto custodian must demonstrate technical expertise, legal clarity, and financial soundness.
Long refers to the missing piece as “a regulated bank that can act as a bridge to Fed for payments + custody crypto for BIG institutional money”.
If Avanti Bank fills this void, it may lead to the next phase of exponential growth for crypto, and some of the outlandish bitcoin price predictions may come true.