Deficit widens for banks' crypto custody business on market slowdown

The Korea Times

The Korea Times

Finance

Tue, September 26, 2023 | 09:08

Cryptocurrency

Deficit widens for banks' crypto custody business on market slowdown

Posted : 2023-05-11 16:02

Updated : 2023-05-11 16:35

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By Lee Min-hyung

Four major lenders ― KB, Shinhan, Woori and NongHyup ― are experiencing widening losses in their investments in crypto custody business operators, hit by the market's abrupt slump over the past two years, data showed Thursday.

The digital custody business, which refers to various methods of storing and protecting digital assets on behalf of their owners, picked up steam in 2020 and 2021 amid the growing popularity of crypto investments here. Banks also jumped on the bandwagon by clinching partnerships with emerging digital custody business operators.

But the abrupt stagnation of the digital asset industry ― sparked by rapid interest hikes here and abroad ― ended up widening the deficits of custody businesses.

According to data from the Financial Supervisory Service, Korea Digital Asset Custody (KDAC) suffered a net loss of 1.27 billion won ($960,000) in 2022. This is a more than twofold rise from a year earlier. As a result, the value of Shinhan Bank's stake in the company decreased by around half. As of the end of 2022, the firm's stake in the digital custody business operator stood at 272 million won.

Cardo ― a Seoul-based digital custody service operator ― also suffered losses of 1.6 billion won for the two years since 2021. NongHyup Bank and a group of blockchain and security firms invested in the company.

Korea Digital Asset ― which received investments from KB Kookmin Bank ― reported a loss of 360 million won last year after suffering a deficit of 307 million won the previous year.

As the industry is still heavily regulated, custody players have had to invest heavily to build initial security systems and increase their personnel.

"Despite the initial losses, the market still comes with potential for growth due to the expandability of the digital asset industry," a crypto industry source said. "The global rate hike cycle nears the end, and more people are paying attention to the digital asset industry."

According to data from crypto data provider, CCDATA, the assets under management (AUM) of the crypto investment products reached more than $35.6 billion between April 1 and 23, up $4.2 billion from a month earlier. This was driven by the recovery sentiment of the overall crypto industry with Bitcoin and Ethereum showing signs of price rebound in recent months.

mhlee@koreatimes.co.kr