Strategy’s Discretion in Bitcoin Custodianship
A leading player in the Bitcoin investment sector, Strategy, which was formerly known as MicroStrategy, has chosen to maintain a level of discretion regarding its custodial partnerships for holding Bitcoin. Currently, the company manages a substantial Bitcoin portfolio valued at nearly $72 billion, but it has not publicly disclosed the identities of all its custodians.
Multiple Custody Arrangements
According to sources familiar with the situation, Strategy has spoken about having multiple custody arrangements for its Bitcoin assets, implying that there isn’t just one specific custodian responsible for its massive holdings. Notably, Coinbase has been confirmed as one of the custodians after a conversation with a company representative; however, Coinbase has pointed out that Michael Saylor, the founder of Strategy, had previously acknowledged their involvement.
“We must be cautious about exposing too much information about custodians or proving reserves due to security risks.” – Michael Saylor
The conversation about who safeguards these Bitcoin assets gained traction following remarks made by Saylor, which stirred debate within the crypto community, particularly among those who have seen significant collapses in the industry, including FTX and Three Arrows Capital.
SEC Inquiry and Compliance
Two weeks ago, Coinbase’s CEO, Brian Armstrong, sparked discussions online after he claimed that Coinbase provides custodial services for eight out of the ten public Bitcoin holders, hinting that Strategy is included in that group. Although this sparked noise in media, it was revealed that Saylor had already made Coinbase’s custodianship public, and Strategy, being a publicly traded entity under the ticker MSTR, is expected to comply with some disclosure regulations.
In a letter to the SEC from April 2023, amid a tumultuous period for the crypto sector marked by the downfall of FTX and other financial entities, Strategy was asked about how these industry challenges had directly affected its business. The SEC’s inquiry included a specific request for the names of Strategy’s custodians. However, when Strategy replied, it invoked SEC Rule 83, which allows them to keep certain details confidential, including the names of their custodians.
Potential Custodians
What has been clarified is that Strategy’s Bitcoin is held with U.S.-based custodians that have strong compliance records and security standards, regulated under the New York Department of Financial Services (NYDFS). Out of the 35 entities holding NYDFS BitLicenses, only nine had limited purpose trust charters when Strategy responded, suggesting a narrowed field of potential custodians. Prominent candidates include established firms like Fidelity, Gemini, and NYDIG, along with the already mentioned Coinbase which has been frequently referenced in Strategy’s financial disclosures.
While Coinbase seems a likely candidate due to their long-standing relationship with Strategy, another name that has emerged in discussions is Fidelity, especially after blockchain analysis indicated a link to approximately 70,000 BTC owned by Strategy. However, Fidelity has not publicly confirmed any holdings from Strategy, citing a commitment to client confidentiality.
Additionally, there are less prominent firms like GMO-Z.com, a U.S. subsidiary of a Japanese conglomerate known for cryptocurrency services; however, they specifically manage reserves in their own stablecoins and are unlikely to handle Bitcoin for Strategy. Similarly, the Standard Custody & Trust Company, which has been associated with Ripple, is another possible custodian, although it operates discreetly in the institutional scene. Bakkt is also under consideration, with a history of providing custody solutions before its operational changes.
Conclusion
As discussions around custodianship unfold, stakeholders and investors remain eager for more transparency surrounding Bitcoin’s security, particularly in a sector that has seen significant upheaval in recent months.
