Expect Ripple Deal to Set Off Crypto Custodian M&A, Says Advisory Firm

Blockchain firm Ripple announced on Wednesday its $250 million acquisition of Switzerland-based custodian Metaco. Crypto advisory firm Architect Partners expects further mergers and acquisitions in the custody industry due to several market factors, according to a new research note.

Architect Partners first analyzed the Ripple-Metaco deal, writing that Ripple “seeks to transform the $156 trillion cross-border payment market, has initiatives focused on the emerging opportunity for Central Bank Digital Currencies (CBDCs) and has aspirations to allow the issuance and settlement of any type of tokenized asset as that market develops.” The addition of Metaco custody technology and related services helps Ripple protect customer assets, control how the technology evolves and provides an “attractive new revenue stream.”

Further strategic deals will likely occur in the custody market due to a combination of regulatory and bear market factors, said the advisory firm. U.S. regulators have signaled that only registered Qualified Custodians (QCs) are allowed to custody digital and crypto assets, and there are few QCs currently in existence. Regulators have also suggested that the act of being an asset custodian has to remain operationally separated from execution activities, which is a setup more common in how traditional finance handles equities than in crypto companies.

Traditional finance custodians such as Northern Trust and BNY Mellon have been wary of entering the crypto market due to the regulatory and market risks, but Architect Partners expects that to change in the future, which would represent “both a threat and an opportunity for those building specialized digital and crypto asset custody businesses.” The crypto winter has also put pressure on custodians and has slowed or stalled growth of assets under custody, leading to flat or declining revenues and recruiting financial staying power and conviction that an upturn is coming,” according to Architect Partners.