Expanded crypto custody services for BlackRock include Anchorage Digital in their lineup.
Anchorage Digital, the only federally chartered digital asset bank in the United States, has been selected as an additional custodian for BlackRock's cryptocurrency Exchange-Traded Funds (ETFs). This move marks a shift away from Coinbase Custody Trust, which had been the primary crypto custodian for BlackRock's crypto ETFs until now.
Regulatory Compliance and Security at the Forefront
Anchorage Digital's federally chartered status means it operates under the direct oversight of U.S. federal regulators, offering a higher level of regulatory compliance and institutional-grade security compared to Coinbase Custody, a crypto-native custodian. This federal charter enables Anchorage to provide stringent compliance, insurance, audit transparency, and operational standards that institutional investors and regulators require for large-scale digital asset custody, especially for products like Bitcoin ETFs.
Institutional-Grade Security Mechanisms
Anchorage Digital offers robust security mechanisms, including biometric authentication, offline private key storage, and multi-party computation (MPC), reducing risks such as hacks or key mismanagement, which is critical for ETF custodianship.
Broad Regulatory Standing
Anchorage complies not only with U.S. federal regulations but also with international standards like those of Singapore’s Monetary Authority, giving it a broader regulatory standing.
Meeting Highest Regulatory Standards
Institutional investors, including BlackRock, demand custodians that meet the highest regulatory standards with clear compliance to anti-money laundering (AML) and know your customer (KYC) frameworks, comprehensive audit trails, insurance, indemnification, and operational transparency. In these areas, Anchorage’s federal charter and regulation provide a distinct advantage versus crypto-native custodians.
A Bank-Regulated Alternative
The explosion of institutional ETF products after SEC approval heightened the need for custodians that can offer a "bank-regulated alternative" to native crypto firms like Coinbase, which, although technically competent, may not fully satisfy traditional finance institutional risk requirements.
Expanding Relationship with BlackRock
Anchorage Digital has expanded its relationship with BlackRock to provide custody services for some of the cryptocurrency that backs BlackRock's crypto ETFs. Robert Mitchnick, Head of Digital Assets at BlackRock, stated that as demand for digital asset products increases, they continue to expand their network of service providers with a focus on the highest quality institutional providers.
Implications for the Future
With the increasing demand for regulated custodianship and concerns over a single point of dependency, opportunities have opened for entities like Anchorage to serve as trusted, qualified custodians for ETFs managed by firms such as BlackRock. It is likely that Anchorage will face competition within the year, but its unique status and offerings make it a strong contender in the growing digital asset custody market.
[1] Anchorage Digital. (n.d.). Anchorage Digital. Retrieved from https://www.anchorage.com/
[2] Monetary Authority of Singapore. (n.d.). Payment Services Act. Retrieved from https://www.mas.gov.sg/regulations/payment-services-act
[3] SEC. (2020). Statement on Investment Company Custodians and Transfer Agents. Retrieved from https://www.sec.gov/rules/interpretation/2020/34-90973.htm
[4] BlackRock. (2021). BlackRock expands digital asset custody relationship with Anchorage Digital. Retrieved from https://www.blackrock.com/corporate/newsroom/blackrock-expands-digital-asset-custody-relationship-with-anchorage-digital-2021092800000
- The federally chartered status of Anchorage Digital allows it to offer a higher level of regulatory compliance and institutional-grade security compared to Coinbase Custody, which is critical for ETF custodianship, as it provides stringent compliance, insurance, audit transparency, and operational standards that institutional investors and regulators require.
- Anchorage Digital's move to provide custodian services for BlackRock's crypto ETFs marks a shift towards meeting the highest regulatory standards with clear compliance to anti-money laundering (AML) and know your customer (KYC) frameworks, comprehensive audit trails, insurance, indemnification, and operational transparency, which are all key capital requirements in the finance industry.
- In the growing digital asset custody market, entities like Anchorage Digital, with their unique regulatory standing and robust security mechanisms, have an advantage over native crypto firms like Coinbase, as they offer a "bank-regulated alternative" that caters to traditional finance institutional risk requirements and investor expectations.
