Responsible Custody of Customer Assets (vs FTX et al)
It's been a week that has forced many of us to consider who we trust for custody of our assets. The FTX debacle should have never happened – FTX were FULLY regulated. Still, assets were lost, and customers were left high and dry.
FTX was recently valued at $32 billion, and now it appears to be worthless. Their recently filed bankruptcy petition listed at least $10 billion in liabilities. The rapid unwinding of the world's second-largest crypto trading platform this week may have been a solvency crisis, or it may have been a liquidity crisis (or one turned into the other, or both!). And most of its in-house lawyers and compliance staff abruptly quit four days ago.
As a crypto exchange that offered futures and other leveraged trades to investors, it rehypothecated assets (tokens) to create leverage. Without a doubt, the story will unravel over the coming months, and we will likely hear of unethical, even criminal, business practices.
When people talk about stocks or cash, we rarely focus on custody. Either the cash is in our pocket or it’s in a bank. The cash is either somewhere you can readily put your hands on it, or it’s in a highly regulated financial institution – sound familiar? You may remember what happened to the cash on deposits in Cyprus or read our articles on Bail In Laws in Australia. The nature of many cryptocurrencies is that they share some features with other financial bearer instruments (like physical cash, or gold and silver).
The regulatory environment – which can be harmonious for customer and custodian protection – for cryptocurrencies and exchanges is still a bit like the Wild West. The recent events have seen a mass movement out of exchanges and into self-custody. As of November 2022, the number of Bitcoins held in self-custody wallets almost reached 15 million. Out of the current circulating supply of 19,204,000, this number shows that 78% of all Bitcoin is held in self-custody. We will cover more of the FTX narrative from an on-chain perspective in tomorrow’s news.
FTX, a company founded in 2019, by negligence or malice, increased their internal risk until it could not be fixed. The lines between customer and company funds were blurred. Ainslie has been operating since 1974 and our simple and robust (by design) purchasing and storage methods have proved to the test of time. We understand the importance of rigid custody. When you purchase crypto from Ainslie, you either take full custody of it yourself or put it into a storage account with us.
If you have a crypto storage account with Ainslie, your funds are in their cold wallets, audited, and held in Reserve Vault. We do not touch your crypto until YOU decide to sell. You could leave your crypto assets with us for a lifetime, and they will not be touched without your authority.
You can also choose to have your funds loaded onto an Ainslie Cold Wallet – which we print for you in-store. This gives the FULL custody of your crypto assets to you. We produce your wallet in front of you (for the avoidance of doubt) on an offline computer and give you the only copy to take home. Put simply, there is NO online footprint of your keys.
Gold and Silver Standard (AUS and AGS), our gold and silver-backed tokens, are the most transparently backed tokens in the digital asset industry. At any time, you can audit the blockchain to see that the number of tokens minted correlates to the amount of gold and silver held in the Reserve Vault. Each bar on the database is checked by a globally respected assurance firm to ensure both the weight and serial numbers recorded on the database match what is stored in Reserve Vault. A report of factual findings is produced for anyone to see at any time – available on goldsilverstandard.com
Trust – hard to build, easy to break. Ainslie is built on trust. Ainslie means trust. We will continue to provide world-class asset custody solutions, built on the ideals for which we have operated for almost 50 years.
So if you are looking to purchase crypto, consider an Ainslie Storage Account or visit our Brisbane and Melbourne offices to take full control of your digital assets.