Banks Will Face Headaches as They Move Into Digital Custody, Warns Xapo Bank Director Joey Garcia

Joey Garcia talks on stage with Keison Rigg, Boris Bohrer-Bilowitzki and Claire Wells.

Key Takeaways

Xapo Bank Joey Garcia cautioned that as banks move into digital asset custody, they’ll confront major operational hurdles. Xapo Bank’s evolution from a Bitcoin custodian into a fully licensed bank gives it an edge over traditional institutions, Garcia said. Garcia predicted banks will rely on third-party providers and integrated service models.

Traditional banks rushing to offer digital asset custody services are likely to hit major operational and regulatory hurdles as they come online, Joey Garcia, Director of Xapo Bank, warned at London’s ZebuLive conference on Wednesday.

Challenges Will Emerge

In a talk on institutional crypto, Garcia claimed that the sector’s technical and regulatory challenges remain “miles away” from convergence with established banking standards.

“I think that as banks start to come more online, they’re going to start to understand some of the issues, complexities, and difficulties within custody and service,” Garcia said.

Garcia, who chairs the Executive Council of the Bank, said he has spent years working with consultants on “definitions, trademarks, and custody standards.”

He added that the gap between traditional finance and crypto-native models is still wide.

“Citibank came up relatively publicly over the days,” he noted, referring to the lender’s exploration of crypto custody.

On Oct. 13, a Citi executive told CNBC that the bank had been developing a crypto custody service for the last couple of years.

However, Garcia said the absence of a spot exchange-traded fund (ETF) means about $120 billion in digital assets remain outside of conventional custody systems.

He explained that this pushes firms to depend on intermediaries “as a way to rely on security and counter-parties.”

Building in Reverse Is Harder

By contrast, Xapo Bank, he said, “was a Bitcoin custodian who met us in 2013 and migrated across into providing banking services.”

The shift allowed the firm to build from the crypto base upward, “a Bitcoin-based bank, offering integrated custody.”

Traditional banks attempting the reverse, layering digital services onto existing systems, face deeper friction, Garcia said.

“If you flip it the other way, you’re a bank, and you want to start providing integrated stable currency,” he said, describing discussions he has had with the U.S. Treasury Department about integrating stablecoin payment services into classic card infrastructure.

Still, Garcia expects progress through partnerships.

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“They’ll be looking at third-party providers, integrated services … to apply the player-style approach,” he said.

He cautioned, “once you start bringing that entire universe into banking infrastructure, it can absolutely be done, but it’s more complex than the world can understand.”

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