The value of the crypto custody market amounted to $448 billion in 2022

**The Growing Digital Asset Custody Market: Trends and Challenges**

**Digital Asset Industry Overview**
The digital asset industry experienced significant growth, reaching a peak valuation of over $3 trillion in November 2021. However, the custodial part of the market remained at a more modest mark of $447.9 billion in 2022.

**The Joint Report on Digital Asset Custody**
A joint report on the state of digital asset custody was conducted by consulting firm PricewaterhouseCoopers (PwC) and wealth tech platform Aspen Digital. The report, published on July 11, offers valuable insights into the industry.

**Number of Custody Service Providers**
According to the report, there are currently 120 custody service providers as of April 2023. These providers can be divided into two broad categories: third-party service providers and self-custody solutions.

**Institutional Developments in the Custody Market**
The report highlights several key institutional developments in the custody market. These include the rise of interest in crypto staking, made possible by the Ethereum Merge, as well as the emergence of non-fungible tokens (NFTs) and Metaverse, which have caught the attention of institutional investors.

**The Challenge of Security**
One of the major challenges faced by the custodial industry, as identified in the report, is security. The lack of appropriate governance, risk management, and internal controls has been demonstrated by cases such as the FTX failure in 2022. As a result, institutions are increasingly seeking self-custody solutions or reputable digital asset custodians to safeguard their assets.

**Insurance Policy Challenges**
Another challenge faced by custodians is related to insurance policies. Self-custody solutions do not typically offer insurance policies, and users are not compensated for any loss of digital assets resulting from negligence. The report emphasizes that sound insurance policies are an essential criterion for family offices and other investors when choosing digital asset custodians.

**Steps for Selecting a Custody Service Provider**
To assist investors in selecting a custody service provider, the report suggests a five-step approach:
1. Mapping the market: Identifying and assessing the available options in the market.
2. Creating a grades system: Developing a system to evaluate and compare different custody service providers.
3. Performance review: Assessing the track record and performance of potential custodians.
4. Preliminary procedures: Conducting due diligence, including background checks and reviewing the provider’s compliance with regulations.
5. Decision-making: Making an informed decision based on the evaluation of the previous steps.

**Regulatory Guidance for Investment Funds**
In recent news, Canada’s financial authority issued guidance to help fund managers comply with legal requirements for investment funds holding crypto assets. The authority has also expressed trust in the regulated futures market for cryptocurrencies, emphasizing its role in promoting greater price discovery.

In conclusion, the digital asset custody market has experienced rapid growth, with institutional investors showing increased interest in self-custody solutions and reputable custodians. However, security and insurance policy challenges remain significant hurdles for custodians to address. With the insights provided by the report and regulatory guidance, investors can make more informed decisions when choosing a custody service provider.