Virtual asset custody gains traction in Korea amid legal hurdles
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The market for virtual asset custody — a service that securely stores virtual assets for owners, primarily corporations — is once again gaining momentum in Korea.
Although corporate ownership of virtual assets is still prohibited domestically, there is growing anticipation that it will eventually be permitted, following the lead of major economies.
Five major banks were among the early entrants into Korea's virtual asset custody market.
The most recent example is Hana Bank. In September 2023, it launched a joint venture with BitGo, named BitGo Korea, with Hana Financial Group acquiring a 25 percent stake in the company. Established in 2013, BitGo is a global digital asset trust company managing around $70 billion in assets.
In November 2020, KB Kookmin Bank established Korea Digital Asset in partnership with blockchain developer Haechi Labs and investment firm Hashed. A few months later, Shinhan Bank launched Korea Digital Asset Custody in collaboration with virtual asset exchange Korbit.
NH NongHyup and Woori Bank have also invested in virtual asset custodians such as Cardo and Decustody, respectively.
Virtual assets on the blockchain are controlled using a private key — a random combination of letters and numbers that grants ownership. It's crucial to avoid losing or exposing this private key. Custody providers offer secure storage and management of these keys.
Except for Hana Bank, which entered the market relatively late, Korea's other four major banks have reported deficits, hit by a market slump during the crypto winter. However, with the global market reviving, the custody service is once again gaining momentum.
"Recently, with the launch of Bitcoin and Ethereum spot ETFs in markets like the U.S. and Hong Kong, the overseas virtual asset custody industry is experiencing growth," Kiwoom Securities analyst Kim Hyun-jung said.
For instance, Coinbase Custody, a subsidiary of the United States' largest cryptocurrency exchange Coinbase, now manages over $100 billion in assets.
Even though only individual investments are allowed in Korea, significant revenue opportunities are expected to open up once corporate investments are fully permitted. As of 2023, the market cap of virtual assets in Korea already reached 43.6 trillion won ($32.6 billion).
However, more time will be needed before these firms can achieve meaningful results. The Virtual Asset User Protection Act, which came into effect in July, lacks provisions specifically addressing custody services.
"The act's current focus is on issues such as virtual asset price manipulation and unfair trading practices, with no provisions related to the custody business. As a result, the industry is urging expedited discussions on the second phase of the act, stressing the need for the detailed regulations concerning custody businesses and other sectors within the virtual asset industry," Kim said.