Are custodial crypto funds at risk?

Under guardianship, investments are generally quite safe until the custody of the guardian is called into question.

Investors can’t help but ask a simple question after news of bankruptcy circulates among crypto businesses like Celsius and Three Arrows Capital: What happened to all the money that was supposed to be “safe custody?” A tiny portion of crypto firms engaged in leveraged trading, relying on customers’ deposits to offer promised high APY returns on supposedly fixed-income products. When the market was believed to have limitless potential, everything went swimmingly.

However, as token values plummeted, such firms saw their positions dwindle and received an increase in demand for withdrawals as investors sought to safeguard their money. The combination of selling pressure caused by the bear market and the possible loss of investors’ original cash due to company insolvency resulted in declining coin prices and a probable wipeout of investors’ primary resources.

During the bull market, not all asset custodians took huge risks with clients’ money in order to attract more capital. Aaron Wood spoke with Bit.com’s business development lead, Leslie Hsu, at the European Blockchain Convention in Barcelona about Cointelegraph news editor. In March 2020, Bit.com debuted in the Seychelles as a centralized crypto exchange.

However, Hsu acknowledged that because of regulatory arbitrage, it will be difficult for administrative bodies to punish incautious risk-taking custodians. “Different countries have different regulations. For example, in the United States, only US-domiciled companies can trade there. Nowadays, no single international legislation exists that covers all potential cryptocurrency-related problems.”

Gambling rules, in some places, take precedence over administrative regulations when it comes to cryptocurrency.

At a separate session, Cointelegraph’s managing editor Alex Cohen spoke to Michael Lau, the global head of sales at regulated crypto exchange Bullish. Trust is an issue for Lau not only in terms of providing services but also in how they are done: “From our perspective, we decided we would be regulated one day. So then there’s an element of accountability, right? Someone is actually auditing our inner workings and making sure that we can actually fulfill the promises we are making.”

“I was surprised by the high amount of retail involvement for digital assets when I initially entered the business in February 2020 after a career in conventional finance,” says Lau.

While the head of BlackRock, Larry Fink, stated in December that there was a “tendency toward regulation” in the market, Lau said he is pleased with investor demand for regulation. “There’s a certain degree of professionalism and responsibility expected of fund managers. As an investor, I want to know that I’m safe. I want to know that the fund manager is following the rules. I want to make sure there’s good asset segregation. We’ve seen a significant rise in demand for legislation recently.”

Crypto Tax Calculator Australia is the perfect tool for Australian crypto traders. Use the Crypto Tax Calculator to make filing your crypto taxes a breeze this year! We make it easier for you! It takes the hassle and stress out of crypto calculations. So if you’re looking for an easy way to calculate your cryptocurrency transactions, then look no further than our handy Crypto Tax Calculator.