Bitget Study: Assets Under Custody Surged by 250%, Highlighting Opportunities for Pursuit

Custodial accounts, typically offered by third-party services, provide users with a secure method to store their digital assets. Understanding how long these accounts are used — whether for short-term or long-term storage — is important for analyzing investor behavior, market dynamics, and the evolving nature of the crypto ecosystem.

The study utilized data from Bitget's third-party custodial accounts (also referred to as custodial wallets in this study), which were launched in August 2023 through collaborations with digital asset custody providers such as Copper and Cobo. The research aims to explore the relationship between various market indicators and the duration of usage of these custodial crypto accounts. Previously, this data was quite limited, accessible solely from exchanges and related institutions for brief periods, often specific dates only. Such restricted data availability obstructed a comprehensive overview, rendering the custodial crypto wallet data unrepresentative and insufficient for analyzing market behavior among typical crypto asset holders. Gaining wider acceptance and attracting institutional investors, cryptocurrency provides access to more data and a clearer understanding of the market.

Key Takeaways:

● Total assets under custody have surged by 250% in the past four months surrounding the anticipation and subsequent final approval of the BTC ETF.

● Custodial accounts nearly doubled since November 2023.

● There's a noticeable correlation between assets under custody and Bitcoin price fluctuations and positive market sentiment towards the BTC ETF.

● 43% of short-term custodial account holders redeposit funds into their accounts.

● Approximately 77% of custodial accounts serve as short-term storage solutions.

Demand for custody services grows together with the market

In 2022, the crypto custody market soared to $448 billion , underscoring the burgeoning need for secure storage solutions among a diverse range of investors. The response to this growing demand has seen a significant influx of custodial services from key players in both the cryptocurrency and traditional banking sectors. Among the latter are major global banks such as Commerzbank AG, Raiffeisen, Deutsche Bank, BNY Mellon, and HSBC, which introduced digital assets custody services for their clients in 2023.

The surge in custody services can be attributed to several pivotal shifts, including an influx of users transitioning from traditional markets and the prevailing positive sentiment in the crypto market, fueled by anticipation surrounding the approval of Bitcoin and Ether exchange-traded funds (ETFs) in January.

At the same time, the surge in enthusiasm for digital assets goes hand in hand with challenges for traditional financial institutions and investors. Safeguarding and managing digital assets entail considerable operational complexities, encompassing security risks, intricacies in existing solutions, and a notable absence of adequate insurance coverage. Moreover, self-custodial solutions have revealed limitations in adapting to the evolving needs of crypto users.

Custodial accounts doubled in the last four months

The research has been conducted based on data from Bitget custodial accounts, which were launched for users in August 2023 in collaboration with digital asset custody providers such as Copper and Cobo. To compile relevant insights into this growing market niche, general account statistics, user behavior, and timing were analyzed. Notably, the total number of custodial accounts doubled in the past four months from November 2023 to February 2024.

The upward trend persisted even during periods when the values of most cryptocurrencies dropped to their respective low points. Several factors can explain this:

● Increased numbers of cryptocurrency users anticipating further growth in digital asset value;

● The gradual integration of crypto payments into daily life;

● Escalating global economic crises;

● Anticipation surrounding Bitcoin and Ethereum ETF approval;

● Completion of the market recovery cycle post-FTX and Celsius;

● Growing cryptocurrency adoption.

Financial institutions' demand

The total number of custodial wallets has risen steadily since the launch of Bitget’s custody service in August 2023 displaying minimal fluctuations. This trend contrasts with the numerous institutional initiatives underway, coupled with mounting societal pressure for regulatory endorsement of cryptocurrency ETFs. Notably, high-profile court cases unfolded during the fall of 2023 and continued into early 2024, eliciting corresponding responses from institutional bodies.

The funds under custody show a clear correlation with fluctuations in the price of Bitcoin and the positive market sentiment towards the BTC ETF. It's apparent that during periods of growing Bitcoin prices in November, the funds experienced corresponding increases. In November 2023 and January 2024, the total amount of assets on custodial accounts recorded sharp upsurges, of 150% and 40% respectively. This metric surged by 250% from November 2023 to February 2024.

This period marked a notable shift as numerous companies began recognizing the potential of blockchain technologies and the value of custodial asset storage. The autumn months also depicted a rise in companies inclined to invest in digital assets, potentially reflecting a cautious approach. With stronger anticipation for BTC ETF approval during that time, this cohort appears to be increasingly inclined towards investing in crypto assets. Furthermore, following the final approval of the BTC ETF in January, the appetite for investment continued to grow.

Figure 1. Bitcoin’s price performance

Short-term storage accounts prevail

Custody accounts can be categorized into two distinct groups:

● Accounts used for short-term storage;

● Accounts used for long-term storage.

Wallets within the short-term storage category exhibit increased activity levels and typically maintain a balance exceeding $100,000 for less than three months.

When considering the overall number of wallets, the correlation between institutional interest and the total number of custodial wallets isn't apparent at first glance. Examining the trends of wallets utilized for short-term storage, the graphs significantly align.

Figure 2 illustrates the dynamics of the wallet distribution based on their storage type (short-term or long-term). Approximately 77% of custodial accounts served as short-term storage solutions from November 2023 to February 2024.

Figure 2: Сustodial crypto wallets for short-/long-term storage (%)

In the first three months after the launch of Bitget’s custody service, the dominance of short-term storage wallets persisted without any noticeable sustainable growth. In November, a clear trend emerged, showcasing an upsurge in short-term storage wallets. This increase might not solely be attributed to new wallet registrations but also to increased trading activity in wallets previously used for long-term storage, alongside investors’ decisions to cash out. Comparatively, larger balance accounts in recent months have shown a preference for shorter asset retention periods. This inclination could be attributed to the positive crypto performance observed in Q3 2023, leading to investors’ decisions to withdraw capital to other markets after reaching a targeted profit earlier than planned.

It's interesting to note that 43% of short-term custodial account owners redeposit funds into their accounts. While drawing a broader conclusion demands more time, this trend sparks curiosity as it alters the general perception of custodial accounts, timing, and the anticipation of long-term use akin to traditional banking deposits. Such behavior might signify that investors are delving into new services, albeit on a limited scale.

Plotting the graphs of changes in the percentage of wallets used for short-term storage and changes in the share of institutions involved, it is possible to see similarities and a high degree of correlation (Figure 3).

Figure 3: Correlation between the percentage of custodial crypto wallets for short-term storage and the percentage of studied institutions who plan to invest in digital assets

It can be assumed that the desire of institutions to join the crypto market encourages other users to increase their activity. The start of full-fledged operations with crypto instruments by financial institutions will likely contribute to an increase in the capitalization of the crypto market.

The anticipation among crypto users for such short or medium-term changes could lay the groundwork for the expansion of custodial wallets. In such a scenario, crypto holders might foresee a rise in the value of their digital assets. Considering the market capitalization trends for 2023, this scenario appears highly probable.

Figure 4: Dynamics of crypto market capitalization

Conclusion and Key Implications

Four primary indicators were examined in this study:

● The number of surveyed institutions intending to invest in digital assets;

● Crypto market capitalization;

● Total count of custodial crypto wallets;

● Quantity of custodial crypto wallets specifically for short-term storage.

Upon analysis, several key points emerged:

● Throughout the second half of 2023 and up to the present, the number of custodial wallets has exhibited consistent, steady, and linear growth. This pattern suggests heightened interest among cryptocurrency users and a surging popularity of custodial services.

● Since the fall of 2023, there has been a notable upswing in financial institutions' interest in cryptocurrencies and blockchain technologies. This shift indicates potential strategy changes within companies, reflecting an increased inclination toward using digital assets.

● The growing trend of creating wallets for short-term cryptocurrency storage might signal shifts in investors' strategies due to market sentiments or as a consequence of the nascent phase of the custody service market.

● Despite fluctuations in the cryptocurrency market, the growing number of custodial wallets underscores a consistent demand for digital assets and a persistent user reliance on them.

● The overall trend of custodial wallet growth, coupled with mounting institutional interest, could propel further cryptocurrency market development and augment its credibility.