Institutional-Grade Custody Remains Missing Link in Crypto’s Mainstream Breakthrough

The cryptocurrency industry has matured from garage-hack experiments to a trillion-dollar asset class with global implications.

Yet, behind the scenes, one stubborn obstacle, the institutional custody gap, remains.

This isn’t just about securing private keys. It’s about building a custodial system that institutional players can trust and that regulators can accept. Until that gap closes, the sector will struggle to fully transcend its hedge-fund roots and become a backbone of mainstream finance.

However, it seems institutional-grade custodial services for crypto are becoming a must-have for the marketplace, as U.S. Treasury Secretary Scott Bessent gave more details Thursday (Aug. 14) about the U.S. bitcoin reserve. He valued the reserve at around $20 billion and said the Treasury is committed to exploring budget-neutral pathways to acquire more Bitcoin to expand the reserve.

Major players like multinational financial institutions are taking notice. Citigroup, for example, is reportedly exploring custody and payment services for stablecoins and crypto ETFs. Executives cited relevance within Citi’s services business, which includes treasury, cash management, cross-border payments and other services to large companies and institutions.

Large, risk-averse institutions such as pension funds, corporate treasuries and sovereign wealth vehicles have so far tiptoed into digital assets. The moves by the U.S. Treasury and Citi show that this posture could be softening, and it could serve as a wake-up call to the rest of the financial services space.

Read also: Circle and Deutsche Bank’s Crypto Custody Announcements Put KYC/AML Under Spotlight

The absence of a fully bank-regulated custody option has left a chasm. Asset managers launching spot-crypto ETFs, corporate treasurers experimenting with stablecoin settlements, and multinationals considering tokenized payments have traditionally largely had to work through a handful of nonbank providers.

Much of that role has been assumed by crypto-native companies such as Coinbase, BitGo or Anchorage. While technically competent, these firms operate under a different regulatory perimeter, one that doesn’t always align with the risk appetites of traditional finance.

Coinbase said during its second-quarter 2025 earnings report July 31 that its crypto assets under custody reached a record $245.7 billion, with Coinbase securing custody for eight of the top 10 public companies holding Bitcoin. The company maintains more than 80% custody market share for crypto ETFs. That level of single-point dependency has not gone unnoticed in corporate boardrooms.

Another driver of institutional-grade custody needs has been the institutionalization of crypto markets through products like spot bitcoin ETFs. Since the Securities and Exchange Commission green-lit these funds in early 2024, their growth has been explosive. BlackRock’s iShares Bitcoin Trust alone has reached a market capitalization of around $90 billion.

For every ETF share issued, an equivalent amount of bitcoin must be securely stored somewhere. Today, that “somewhere” is almost always a crypto-native custodian. Citi and other financial institutions weighing custody services see an opening to provide a bank-regulated alternative.

Institutional investors require more than technical security. They demand compliance with anti-money laundering and know your customer frameworks, seamless audit trails, insurance, indemnification clauses, operational transparency and regulatory standing that spans multiple jurisdictions.

See also: Crypto Is Coming for the Cubicle; Are Finance Teams Ready?

Within Citi’s strategic framework, the initiative dovetails with its existing services division.

Citi has been experimenting with blockchain-based settlement for years through initiatives like Citi Token Services. In pilot programs, it has facilitated 24/7 tokenized U.S. dollar transfers between New York, London and Hong Kong. Extending that capability to allow corporate clients to send and receive stablecoins, or instantly convert them into fiat, would close the loop between custody and real-world use.

Looming over all of this is the possibility that Citi could one day issue its own stablecoin. CEO Jane Fraser has acknowledged that the bank is exploring the idea, although she has said that custody and payments are the more immediate focus. Issuance would give Citi even more control over the end-to-end flow of digital value within its ecosystem.

“Treasury has always been the last to modernize,” Trovata CEO Brett Turner told PYMNTS in an interview posted in July. “Everything around it is digital — supply chains, CRMs, ERP systems — but cash management is stuck in the past. Stablecoins are kind of where the puck is going … but it’s still very early days.”

The path ahead is far from straightforward. Digital asset custody brings with it a new set of risks, particularly in cybersecurity. Safeguarding the private keys that control billions of dollars in tokens is not merely a matter of locking them in a vault; it requires a combination of advanced cryptography, geographically distributed storage, multiparty computation and continuous monitoring for threats.

A breach could have financial and reputational consequences on a scale that traditional banks rarely face.

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