Taiwan to Launch Crypto Custody Services Through Local Banks in 2025

Taiwan, one of the most dynamic economies in Asia, has announced its plan to trial cryptocurrency custody services through local banks by 2025.

Overview

This groundbreaking initiative aims to create a regulated framework for managing and safeguarding digital assets, reflecting the country’s increasing openness to cryptocurrencies. As governments worldwide grapple with how to regulate digital currencies, Taiwan’s decision marks a pivotal step in its journey toward becoming a key player in the evolving crypto space. With a well-established financial infrastructure and a tech-savvy population, Taiwan’s foray into crypto custody services positions it as a hub for institutional crypto investments in Asia. On October 8 2024, a local media outlet, Central News Agency, reported that Taiwan’s Financial Supervisory Commission (FSC) is set to initiate an institutional trial for crypto custody services.  

The Growing Need for Secure Crypto Custody Solutions

Crypto ownership has grown significantly over the past decade, attracting retail and institutional investors. However, as crypto assets increase in popularity, the demand for secure storage solutions has also surged. Custody services, especially for institutional investors, safeguard assets against cyberattacks, theft, and fraud. A custody service provider is a trusted third party that securely stores private keys and controls crypto assets. Taiwan’s trial of crypto custody services reflects an understanding of the risks involved in self-custody, where users hold their keys. 

For retail investors, self-custody may be challenging due to the technical knowledge required and the potential for human error. For institutional investors managing large portfolios, self-custody carries even more significant risks, as mismanagement of private keys can lead to massive financial losses. The trial by Taiwan’s local banks aims to address these concerns by offering a safer, regulated environment for crypto asset storage. With their experience safeguarding traditional financial assets, banks are considered ideal candidates to provide trusted custody services. This trial also opens up opportunities for traditional financial institutions to enter the growing crypto market and offer value-added services to their clients.

The Role of Banks and Government Regulation

Taiwan’s government has been relatively cautious in its approach to cryptocurrencies, reflecting concerns about market volatility, fraud, and the potential for money laundering. However, in recent years, regulatory agencies have taken steps to provide more clarity and structure to the crypto market. Taiwan’s FSC has become increasingly involved in crafting regulations to ensure that crypto activities are legal and transparent. The decision to allow banks to offer crypto custody services aligns with this evolving regulatory landscape. 

Taiwan seeks to establish a more secure and trustworthy ecosystem for crypto transactions by bringing traditional banks into the fold. Already subject to stringent financial regulations, local banks are expected to adhere to the highest security and compliance standards. This move is also part of Taiwan’s broader strategy to integrate blockchain technology into its financial system. By allowing regulated banks to participate in the crypto economy, the government can maintain better oversight of digital asset transactions, ensuring that activities such as anti-money laundering (AML) and know-your-customer (KYC) requirements are met. This will also help to alleviate concerns surrounding the illicit use of cryptocurrencies and foster greater confidence among investors.

Impact on the Crypto Ecosystem and Future Prospects

The trial of crypto custody services through local banks is expected to have a transformative impact on Taiwan’s crypto ecosystem. It will likely encourage more institutional investors to enter the market, knowing highly regulated entities will protect their assets. This, in turn, could lead to increased liquidity and higher trading volumes on local crypto exchanges. Furthermore, the move could spur innovation in the fintech sector. As banks integrate crypto custody solutions into their existing infrastructure, they may explore other crypto-related services, such as lending, staking, and investment products. 

Taiwan’s tech-driven economy and strong blockchain community position the country well to capitalise on these opportunities, driving growth in both the crypto and traditional finance sectors. On a regional level, Taiwan’s entry into the crypto custody space could make it a more attractive destination for international crypto firms and investors. On July 5 2024, Taiwan’s telecom operator, Taiwan Mobile, received a virtual asset licence to open its crypto exchange. As countries like China impose strict regulations on cryptocurrencies, Taiwan could emerge as a more favourable environment for crypto businesses, offering them a regulated yet flexible marketplace. If the trial proves successful, Taiwan could become a regional hub for crypto services, attracting domestic and foreign investment. This would strengthen its global digital finance ecosystem position, potentially spurring similar regulatory moves in neighbouring countries.

Taiwan’s decision to trial crypto custody services through local banks is a significant milestone for the country’s financial industry. By embracing regulated crypto custody, Taiwan aims to create a secure environment for digital asset storage while maintaining oversight through established financial institutions. This move could open the door to more widespread adoption of cryptocurrencies in Taiwan and position the country as a leader in the Asian crypto market. As the world increasingly recognises the importance of crypto asset management, Taiwan’s innovative approach to integrating traditional banks into the digital finance landscape may serve as a model for other nations seeking to regulate and promote the safe use of cryptocurrencies. The outcome of the trial, expected in 2025, will likely play a key role in shaping Taiwan’s future role in the global crypto ecosystem.