This is how institutional custodians store Bitcoin in bulk

In recent years, Bitcoin has increasingly become not only a speculative instrument, but also a serious value preservation tool for institutional investors. At the same time, institutional custody solutions for bitcoin have become increasingly complex and sophisticated to meet security, risk management, insurance and regulatory challenges. THE Coin gecko Analysis shows that institutional bitcoin storage comes with high operational requirements and serious supervisory expectations.

Why do institutions entrust bitcoin to professionals?

A popular solution for individual users is their own hardware wallet: the key is stored offline and they have access to the coins themselves.

Institutions, on the other hand, have different expectations.

Professional bitcoin custodians (custody providers) not only offer a high level of security, but also a number of institutional functions that are essential for managing large amounts of crypto assets. For example, large payouts go through a multi-level approval process: often requiring multiple signatures (multi-sig) and sometimes the transaction takes hours or even days to complete due to risk mitigation controls.

These custodians usually are they also have insurancethat provides protection against theft, internal misuse or technical errors. In addition, they must meet strict regulatory and compliance requirements, such as AML rules, audit rules and requirements for the separate management of customer assets.

Another advantage of the institutional deposit is that it can be easily integrated into a company’s existing systems: accounting platforms, risk management tools or even treasury processes. In the case of international companies, geographical presence is also an important aspect as they look for a custodian that operates in multiple jurisdictions. While this increases complexity and costs, in return it provides a unified, global solution for the professional management of bitcoin assets.

The technology: cold wallets and risk frameworks

Modern institutional custodians often use multi-signature solutions. This means that a transaction can only be carried out if, for example, at least two of the three signatories approve it.

Furthermore, most bitcoins are stored offline in cold wallets, but not necessarily in a simple hardware wallet like the one used by the average user. Often special, there is an industrial-grade infrastructure with redundant security protocols, audit logs and monitoring procedures.

Custodians’ risk management strategy doesn’t stop there: they conduct regular audits, use asset segregation and have a specific plan to address operational disruptions.

Operating costs and challenges

Professional bitcoin escrow is not cheap. The the reimbursement for institutional solutions is significantly higheras individual hardware storage. These costs include regular escrow fees, one-time setup fees, transaction fees, insurance fees, internal IT development and maintenance.

Also, institutions don’t move their coins as quickly as individuals. Withdrawals are often tied to multiple signatories, and it is not unusual for hours or days to pass. This slows down reactivity, but in return significantly increases safety.

The future: automation, programmable rules, regulatory integration

The future of custody offers exciting possibilities.

As technology advances, automated processes are expected to become more widespread – for example, templates that enable programmed spend rules (e.g. multi-sig + timing + threshold based), automatic compliance reporting (e.g. source verification, AML report generation), or even tighter integration into traditional financial infrastructures.

It is important to point out that regulatory transparency – where a clear legal framework is already available – can be a serious catalyst for institutional acceptance.

Institutional custody in the EU and Hungary: regulatory challenges and opportunities

Institutional bitcoin escrow cannot technically function on its own. The regulatory environment has a decisive influence on the form of custody services, especially within the EU.

MiCA regulation: basic principles and consequences

The purpose of the EU Regulation “Markets in Crypto-Assets” (MiCA) is to provide a comprehensive and uniform regulatory framework for the issuance of crypto assets and the operation of crypto asset providers.

MiCA includes several regulated crypto asset service providers (CASP): exchanges, trading platforms and custody providers. The requirements of the regulation are relevant to escrow management on the following points:

• Licensing and monitoring: Custodial service providers must apply for a license and are supervised by the competent national authority (e.g. the MNB in ​​Hungary).
• Segregation of client funds: Providers must ensure that customers’ crypto assets are separated from their own assets and not used for their own purposes.
• Customer information and complaint handling: Mandatory complaint handling procedure, with efficient, transparent processes.
• Risk management and organizational structure: Custodians must set up an appropriate organization (management bodies, compliance and audit teams) and take measures to manage conflicts of interest, internal fraud and IT risks.
• Disrupted shutdown plans: Developing emergency scenarios, if the service provider stops he will find himself in a risky situation, in which case, for example, a liquidation or temporary transition plan is necessary.

EU regulations therefore impose strict requirements on institutional custodians, which is positive because it increases trust, but it also imposes enormous administrative and cost burdens on service providers.

Travel Rule: transparency and traceability

The EU is also introducing the travel rule for crypto service providers: the new rules require crypto exchanges and other service providers to transmit data about the sender and recipient of the transfer during certain transactions.

This mechanism is partly part of the fight against money laundering and terrorist financing, but also applies at an institutional level: custody companies must be able to comply with such information obligations (e.g. AML/KYC, proof of address), which entails an additional technical and procedural burden.

ESMA and centralized supervision: strengthening control

The European Securities Market Authority, ESMA, also plays an active role in crypto supervision. Under a recent proposal, ESMA could have direct supervisory rights over several CASPs, which would reduce independence from national authorities and increase centralized supervision.

This is a sign that this is so The EU does not allow it alone the crypto asset services, but he also wants to exercise serious control over it. For an institutional custodian, this is both an advantage and a challenge: an advantage because there is a regulatory framework and oversight, but a challenge because compliance requires ongoing monitoring, auditing and administration.

Situation in Hungary: What is happening at home?

Hungary also has a lot to do in terms of crypto regulation.

MiCA is a directly applicable EU regulation, but progress has also been made in Hungarian legislation. In October 2024, the Hungarian Parliament for the first time adopted amendments that provide crypto asset providers with a grace period to prepare for MiCA requirements. This means that domestic service providers do not have to immediately comply with all new rules, they have some room for change.

Then came the crypto nuke in the summer, elevating illicit cryptocurrency exchanges in the country to a BTK crime, to which several service providers immediately responded. Since then, the mood has calmed down a bit and the detailed regulations have also arrived, which conditions the cryptocurrency exchangers and custodians in the country must comply with.

MNB and supervisory role

The MNB (Hungarian National Bank) will be one of the competent national authorities for the implementation of the MiCA Regulation in Hungary. This increases the MNB’s role in overseeing the crypto sector, especially when it comes to custodial service providers. Furthermore, Hungary is better connected to the EU’s crypto supervisory system through the MNB.

In the Hungarian political and regulatory environment, government and MNB attitudes towards cryptocurrencies and the bitcoin ecosystem are becoming an increasingly prominent issue. While it is not possible to clearly state that a “total anti-crypto policy” is emerging, several signals indicate that the domestic stance is more cautious and in some places particularly strict.

The domestic implementation of MiCA imposes significant administrative burdens on service providers, mainly due to AML/KYC requirements and escrow management rules. MNB scrutiny is expected to be intense in this environment, which may slow down the development of the domestic crypto industry.

In addition to all this, the attitude of the central bank also influences the situation. The ECB and the MNB are traditionally conservative institutions critical of decentralized crypto assets. Paradoxically, the extension of EU-level supervision, for example of ESMA’s powers, may further limit the scope of national regulation, which could mean new constraints for domestic actors.

Political risk and the anti-crypto narrative

Finally, the political risk cannot be ignored. If the government or central bank moves toward the anti-crypto narrative, new restrictions may emerge that could further slow the development of the domestic institutional bitcoin ecosystem. Bitcoin ATMs, for example, have already completely disappeared from the country.

The question is whether Hungary will play a more restrictive or innovation-friendly role in the crypto economy in the future, and to what extent the country will be able to become a competitive, stable and investor-friendly crypto environment.