Investors are betting billions on crypto custody providers

Custodians of crypto assets are attracting billions of dollars from investors who are betting that the influx of Wall Street players into digital markets will lead to a surge in demand for custody services.

Fireblocks became the highest-valued crypto asset custodian on Thursday after raising $550 million in a new funding round that gave the company a price tag of $8 billion. The figure is in line with the valuation of FTX, one of the world's largest crypto trading exchanges, which announced a $400 million funding round on Wednesday.

Fireblocks has secured new investment from a group of venture capital firms including D1 Capital Partners and Spark Capital. The deal comes after private investors raised $4.5 billion last year.

The capital influx comes on expectations that large professional investors will expand their presence in the digital assets space, fueling a market for lending, borrowing and other trading activities that require crypto tokens and coins to move securely.

Investors have also been pouring money into the broader blockchain industry as the abundance of private capital finds its way into the fast-growing industry.

Custody is an important service for professional investors to access digital markets, and total assets under custody have grown rapidly in recent years, reaching $223 billion as of January this year, according to Blockdata.

Crypto custody providers initially focused on custody and safekeeping of assets such as Bitcoin. But as the market has evolved, custodians have become guardians of assets moving in the digital world, protecting coins and tokens from hackers and ensuring funds are safe and going where they need to be.

Coinbase and PayPal are just two of the companies that have recently acquired custody services as part of an expanded offering for professional investors.

Fireblocks has managed $2 trillion worth of assets to date, changing hands across 20 blockchains and 1,000 cryptocurrencies that have found their way through trading, gaming and other digital avenues such as non-fungible tokens.

The company doesn't disclose profit numbers, but its annual revenue increased 350 percent in 2021, according to Blockdata. Other major custody providers also saw significant growth, according to Blockdata, with both Genesis and Ledger seeing double-digit increases in assets under custody, while BitGo's $64 billion in assets increased 492 percent since December 2020.

In addition to significant inflows of money, senior figures from traditional finance and politics have moved to companies that act as gatekeepers to the digital world. Former British chancellor Philip Hammond joined Copper, one of the largest crypto custody providers based in London, last year.