Global accounting firm KPMG believes that strong custody practices are critical to driving Bitcoin (BTC) adoption among institutions and businesses.
According to the recent report titled “The Importance of Custodians in Bitcoin Adoption and Ownership,” custodians play a crucial role in protecting Bitcoin assets and are critical to the growth of the industry.
It added that administrators must ensure they have robust frameworks in place to counter any emerging threat as security is paramount in driving adoption.
Crucial role of custodians
The report outlined that while Bitcoin’s decentralized nature allows users to control their assets, managing cryptographic keys poses a challenge for many.
According to KPMG:
“Custodians reduced the complexity and risk of managing bitcoin holdings, making it easier for new investors.”
The company emphasized the need for custodians to improve security frameworks and regulatory compliance to protect against internal and external threats.
KPMG has identified six critical attack vectors that administrators must address, including threats from hackers, internal fraud and operational disruptions. It added that collapses such as Mount Gox and FTX were the result of weaknesses in prison oversight, leading to billions of dollars in losses.
The report also highlighted the growing importance of custodians in supporting the rise of Bitcoin Exchange Traded Funds (ETFs). Bitcoin ETFs, which amassed more than $59 billion in assets under management, relied on custodians to keep the underlying assets safe.
Transparency and compliance
KPMG called on custodians to adopt transparent practices, such as proof-of-reserves reports and greater operational reliability, to build trust in the system.
It emphasized the importance of regulatory compliance, especially compliance with anti-money laundering laws and oversight from agencies such as the SEC and FinCEN.
The report warned that custodians must stay ahead of emerging threats, including those from artificial intelligence, and adapt to new challenges in the evolving Bitcoin landscape, such as Layer-2 solutions and collaborative custody models.
KPMG’s recommendations urged custodians to prioritize security, compliance and transparency to build investor confidence and protect the integrity of the expanding digital asset market.