Institutional Crypto Custody: How Secure is Your Digital Asset Storage?

• Blockchain Council
• March 06, 2025

Cryptocurrencies have gained attention from large financial institutions in recent years. As banks, hedge funds, and asset managers explore digital assets, one major question arises, how do they keep their crypto safe? Unlike individuals storing coins in personal wallets, institutions need secure and compliant storage solutions. That’s where institutional crypto custody comes in.

What Is Institutional Crypto Custody?

When someone owns Bitcoin or Ethereum, they usually store it in a digital wallet on their phone, computer, or a hardware device. But large financial institutions can’t risk losing millions by storing assets on a single device. Instead, they use specialized custody services designed to safeguard, manage, and protect crypto holdings.

These custodians work like secure vaults for digital assets. Their job is to prevent theft, hacking, and accidental loss. With crypto’s rise in popularity, the demand for institutional custody solutions has grown rapidly. But how do these services keep assets secure? Let’s take a closer look.

Why Do Institutions Need Secure Crypto Storage?

Crypto security is different from traditional banking. If someone steals cash from a bank, fraud protections and insurance can cover the losses. But in crypto, transactions can’t be reversed once they happen. If someone gains access to private keys, those funds are gone forever.

Institutions dealing with billions in digital assets face even bigger risks. A single security breach could cause huge financial losses. For example, in February 2025, Bybit lost $1.5 billion in Ethereum due to a hack. The attackers exploited a security gap during a wallet transfer. This incident proved that even major platforms must constantly upgrade security.

Governments worldwide have introduced stricter crypto regulations in response to these risks. Institutions must now follow compliance standards and security protocols to avoid fines and legal trouble.

How Do Institutional Custodians Keep Crypto Safe?

Custody providers use multiple layers of security to protect assets from theft and cyberattacks. Some of the most effective methods include:

1. Multi-Signature Wallets

Instead of allowing one person full control, multi-signature (multi-sig) wallets require multiple approvals before transactions go through. This setup prevents unauthorized access, making it harder for hackers to steal funds.

2. Cold Storage

Many custodians store most of their assets offline, keeping them away from potential online attacks. This method, known as cold storage, acts like a digital safe deposit box that hackers can’t easily reach.

3. Advanced Encryption

To keep private keys and transaction data secure, custodians use strong encryption techniques. This ensures that even if someone gains access to stored data, they can’t easily decode it.

4. Continuous Security Audits

Top custody providers perform regular audits to check for vulnerabilities. These audits help identify weaknesses before hackers can exploit them, keeping systems as secure as possible.

By combining these security measures, custodians aim to provide a safe environment for institutional investors.

Which Companies Provide Institutional Crypto Custody?

Several trusted providers dominate the institutional crypto custody space. Each offers specialized security features to protect digital assets.

Anchorage Digital

As the first federally chartered crypto bank in the U.S., Anchorage Digital provides secure custody, trading, and financing services. Its compliance-focused approach makes it a popular choice for institutions.

Coinbase Custody

A division of Coinbase, this service manages over $300 billion in assets for institutional clients. Coinbase combines cold storage, insurance, and regulatory compliance to keep digital funds safe.

BitGo

BitGo offers multi-signature wallets and insurance-backed cold storage solutions. Many large investors choose BitGo due to its strong reputation for security.

New Banking Entrants: State Street and Citi

Traditional banks like State Street and Citi have entered the crypto custody space in 2025. As regulations ease, more established financial institutions are launching their own custody services.

These companies provide different options based on security needs, regulatory compliance, and additional services.

Have There Been Any Major Crypto Custody Breaches?

Despite security improvements, the crypto industry has experienced several high-profile hacks.

The Bybit Hack (February 2025)

One of the biggest breaches in recent years, Bybit lost $1.5 billion in Ethereum during a routine transfer. Cybercriminals exploited a vulnerability in the transfer process, stealing assets before the funds reached cold storage. The FBI later linked the attack to North Korean hacking groups.

This case highlighted how even secure platforms can face major security risks if operational procedures aren’t airtight.

How Are Regulations Shaping Crypto Custody?

Governments and financial regulators have introduced new rules to improve crypto custody security.

SEC’s Updated Crypto Custody Rules

In early 2025, the U.S. Securities and Exchange Commission (SEC) removed restrictions that previously made it difficult for banks to offer crypto custody services. This move encouraged more traditional financial institutions to enter the market.

Consumer Protection Rules

The Consumer Financial Protection Bureau (CFPB) proposed new regulations requiring crypto custody providers to refund users in case of unauthorized transactions. This shift brings crypto protections closer to traditional banking standards.

As regulations continue to evolve, institutions must adapt quickly to stay compliant.

What Challenges Do Crypto Custodians Face?

Even with strong security measures, custody providers deal with various challenges, including:

1. Constant Cybersecurity Threats

Hackers keep finding new ways to exploit vulnerabilities. Custodians must continuously upgrade security measures to stay ahead.

2. Unclear Global Regulations

Crypto regulations differ from country to country. Institutions with global operations must navigate complex compliance requirements across multiple jurisdictions.

3. Integration with Traditional Finance

Crypto custody solutions must connect seamlessly with existing financial systems. Many institutions struggle with the technical complexity of integrating crypto into their workflows.

Despite these challenges, stronger security measures and regulatory clarity will help the industry grow.

What’s Next for Institutional Crypto Custody?

Looking ahead, several trends are expected to shape the future of crypto custody.

More Banks Offering Custody Services

As traditional banks enter the crypto space, competition among custodians will increase. This could lead to lower fees and better security.

Improved Security Technology

Advancements in quantum-safe cryptography and biometric authentication will strengthen protection against cyber threats.

Stronger Global Regulations

Countries like the U.S., EU, and South Korea are pushing for tighter custody rules. As laws become clearer, institutional adoption will likely grow.

The crypto custody industry will continue evolving, making digital asset storage more secure and widely accessible.

Final Thoughts

Institutional crypto custody has become a critical service for financial institutions handling digital assets. Companies like Coinbase, Anchorage Digital, and BitGo lead the space, offering secure and compliant storage solutions.

While security has improved, risks still exist. The Bybit hack of 2025 proved that custodians must remain vigilant against cyber threats. However, new regulations, advanced security measures, and increasing competition will continue strengthening institutional crypto custody in the years ahead.

For investors, the best approach is to choose trusted custody providers, stay informed on security updates, and follow best practices for digital asset storage. To make the most of your crypto assets, enroll into the Certified Cryptocurrency Trader™ (CCT) program.