Bitcoin Custody for Businesses: A Comprehensive Guide
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The landscape of corporate asset management is evolving rapidly with the advent of Bitcoin. As businesses look to diversify their treasuries, Bitcoin has emerged as a compelling asset class. This article delves into the realm of Bitcoin custody for businesses, exploring the mechanisms, risks, and best practices associated with securing corporate Bitcoin holdings.
Bitcoin in Corporate Treasuries
Recent data indicates that approximately 2 million Bitcoins, worth nearly $100 billion, are held in various corporate treasuries. This represents about 10% of all Bitcoins in circulation. These holdings are not limited to private companies; they also include public firms, government entities, and investment funds. While 43 publicly traded and 18 privately held companies have disclosed their Bitcoin investments, many more businesses maintain undisclosed exposures to the Bitcoin.
Methods of Gaining Bitcoin Exposure
Businesses can gain Bitcoin exposure through several avenues, each with its own set of considerations:
- ETFs and Funds: Investment products like ETFs offer a way to gain exposure to Bitcoin without directly holding the asset. The fees for these services can range from an introductory 0.2% to 2.25%, though they typically increase over time. However, these options carry counterparty risks, as the investor does not hold the actual keys to the Bitcoin.
- Exchanges and Custodians: Platforms like Coinbase offer another route to Bitcoin investment, with fees ranging from 0.5% to 2.25%. Although these IOUs for Bitcoin are redeemable, they still present counterparty risks.
- Stocks and Miners: Investing in companies associated with the Bitcoin ecosystem, such as mining operations, provides indirect exposure. This method involves varying broker fees and carries high counterparty risk.
- Self-Custody: Direct ownership of Bitcoin through self-custody eliminates management fees and counterparty risk. It requires the investor to manage their private keys, ensuring 24/7 access to the Bitcoin without relying on third parties.
Counterparty Risks
Counterparty risk refers to the potential default of one party in a financial contract, which is a significant consideration for businesses holding Bitcoin through third parties. A majority of Bitcoin ETFs use custodians like Coinbase or Gemini, with Fidelity being an exception practicing self-custody. Moreover, the industry has witnessed numerous losses and bankruptcies, such as Silvergate, Prime Trust, FTX, and Celsius, highlighting the risks associated with third-party custodians.
The Case for Holding Your Own Keys
Self-custody ensures that businesses have full control over their Bitcoin assets, without counterparty risk or management fees. Properly set up, self-custody solutions can offer secure, unilateral access to Bitcoin holdings, with no single points of failure.
Unchained's Collaborative Custody Solution
Unchained Capital offers a collaborative custody model for Bitcoin, utilizing a multi-signature vault that requires at least two out of three keys to authorize transactions. This approach combines the security of self-custody with the convenience of expert support. Over six years, Unchained has secured billions of dollars in Bitcoin without any loss due to exchange or custodian hacks.
Enterprise Solutions
Unchained provides various models to suit different organizational needs:
- Collaborative Custody: Businesses hold two keys, while Unchained holds the third.
- Partner Custody: The business holds one key, a key agent holds another, and Unchained holds the third.
- Delegated Custody: The entire custody solution is managed by Unchained, ideal for enterprises that prefer not to handle keys directly.
All models feature robust security and are SoC 1 and 2 certified, ensuring compliance with rigorous data security standards.
Conclusion
As the corporate world increasingly turns its gaze towards Bitcoin as a viable asset for treasury management, understanding the nuances of custody becomes paramount. Whether through ETFs, exchanges, or self-custody, each method presents distinct advantages and risks. Collaborative custody solutions like those offered by Unchained Capital provide a balanced approach, combining the benefits of direct ownership with professional oversight and support, enabling businesses to navigate the complex landscape of Bitcoin investment securely and confidently.
