Institutional interest in investing in crypto has grown slowly in the 15 years since bitcoin’s invention.
But the expectation leading up to the Securities and Exchange Commission’s recent approval of bitcoin ETFs caused a significant inflow of bitcoin into larger wallets, suggesting an increase in institutional demand, according to a CoinDesk report of a JPMorgan analysis in October.
Registering the growth, crypto platform Anchorage Digital hired Aaron Schnarch this week as its first-ever chief operating officer, leaning into what firm executives see as the vast potential of crypto for institutional investors.
Schnarch joins Anchorage following recent roles as CEO of Coinbase Custody and vice president of product management at Coinbase Global, in which he focused on building and growing crypto products for institutional clients, including infrastructure for its bitcoin exchange-traded funds products.
A survey of institutional investors conducted by Coinbase in November revealed 64% of current institutional crypto investors expected to increase allocations in the next three years, and 45% of institutional investors without crypto allocations expected to allocate in the next three years.
“The next growth phase of the digital asset industry will be driven by institutional adoption,” Schnarch said in a prepared statement.
Earlier this year, the crypto firm – which has a bank charter from the Office of the Comptroller of the Currency – launched Porto, a self-custody wallet for institutions; and it extended custody to support tokenized money market funds.
Anchorage said it also recently exceeded an all-time high of $50 billion in assets under custody. In Schnarch, Anchorage found the right guy to sustain that growth, explained Anchorage co-founder and CEO Nathan McCauley, who spoke with Banking Dive on his firm’s growth and that of the overall crypto market.
Editor’s note: This interview has been edited for clarity and brevity.
BANKING DIVE: Why does Anchorage need a company-wide COO now?
NATHAN MCCAULEY: If the first part of our journey was about building a regulatory and technical stack for institutional participation in crypto, the next phase is all about scaling to meet unprecedented institutional demand.
We decided to create a company-wide COO position to drive continued growth across all business lines at Anchorage Digital, while also unlocking new opportunities in the market. Aaron will play a key role in helping Anchorage Digital scale to best meet the needs of institutions in crypto.
What parts of Anchorage’s business are poised for the most growth under Schnarch’s leadership and in the current and future crypto environment?
We expect to see major growth across our core custody offering. Between our regulatory status and security profile, Anchorage Digital is already the safe and secure partner of choice for crypto innovators and investors. As more traditional players — including asset managers, registered investment advisors, and hedge funds — enter the digital asset ecosystem, Anchorage Digital will play an increasingly important role as a clear-cut qualified custodian.
In addition to custody, staking has been a major area of growth for the company. Anchorage Digital Bank is the only federally chartered digital asset bank that is explicitly permitted to offer staking as part of our charter. Our security model also allows for assets to be staked from bankruptcy-remote custody at Anchorage Digital Bank.
You recently hired a new general counsel, too, in crypto regulatory veteran and former SEC attorney TuongVy Le. What value do you see in having a former regulator on staff?
Bringing on a former regulator like Vy marks the latest in our commitment to building the best regulatory stack for institutions in crypto.
Between her SEC experience and proven track record in crypto, Vy will help unlock new growth for Anchorage Digital as we continue to launch new business lines and enter new markets. She will also serve as a key liaison between the company and regulators in the U.S. and other markets.
Anchorage also recently released Porto, an institutional self-custody wallet. How are clients reacting to the product?
Institutions have long wanted to self-custody digital assets, but the existing options compromised on asset security and accessibility. By bringing our trusted security model to self-custody, Porto represents a major unlock for institutional participation in the asset class.
With a mobile app and native web dashboard, Porto allows institutional users to access their assets from anywhere, without compromising on security.
When did you first notice growth in institutional demand for crypto?
Over the last six months, we have seen a major increase in institutional demand for safe and secure digital asset infrastructure.
The maturation of crypto market structure continues to drive greater institutional participation, and spot bitcoin ETFs have been a key part of that story.
By providing a regulated and accessible pathway for digital asset exposure, the ETFs are unlocking the next era of institutional adoption. Looking ahead, the ETFs will continue to play a key role in the long-term growth of safe, secure, and regulated institutional participation in crypto.
What spurred the demand for safe custody solutions in the crypto market?
If there was one lesson from market events of 2022, it was the critical need for crypto market structure reform. The big trend for this year is drawing from the time-tested playbook of traditional finance to build a more mature crypto market structure.
For example, segregating custody and exchange functions has long been a standard in traditional market structure. Today, the next generation of institutional participants is demanding the same for crypto.
Anchorage Digital is playing a key role in the separation of custody and exchange functions as segregation of assets under custody is a mandate of our regulator, the OCC. By serving as the underlying custodian for forward-looking exchanges like EDX Markets, we are proud to help unlock the future of crypto market structure.
What trends or innovations are you personally most excited about in the crypto world?
The tokenization of real-world assets is one of the most exciting trends in 2024.
Putting real-world assets on the blockchain is a major bridge between crypto and traditional finance, offering both the efficiency of blockchain and real-world utility.
Just like any digital asset, tokenized assets require the safety and security of a regulated custodian. Anchorage Digital is proud to support the growing ecosystem by providing safe, secure, and federally regulated custody for some of the leading tokenization firms.
