Self-custody is key during extreme market conditions: Here's what experts say

Published at: July 1, 2022

The ongoing crisis of cryptocurrency lending and the associated crypto market decline once again confirms the importance of self-custody or the "true ownership" of crypto by its holder, according to several industry experts.

In June, the cryptocurrency market capitalization plummeted below the $1 trillion mark, with Bitcoin (BTC) nearing its worst monthly losses since 2011. It remains to be seen whether crypto lending would survive the current crypto winter. Still, several industry executives agree that investors can protect their assets forever by simply moving them to self-custodial or noncustodial wallets.

It’s crucial to remember that crypto financial services providers like Celsius or Babel are centralized finance (CeFi) platforms, as opposed to decentralized finance (DeFi) applications, according to Yves Longchamp, head of research at the Swiss crypto bank Seba.

“Based on this evidence, CeFi platforms need to be better regulated with a focus on risk management. It is difficult to regulate DeFi as you cannot put a smart contract in jail, or simply close a DeFi application,” Longchamp said in a statement to Cointelegraph on Wednesday.

One way to regulate the overall crypto market is to regulate the crypto user in the first place by providing education and investor protection tools along with reliable products from an independent source, the executive said, adding:

“In the spirit of blockchain, self-administration is key: Crypto holders should own their coins in non-custodial wallets. If a user is to make smart decisions they need to be well-informed on the risks they are undertaking.”

Longchamp also argued that algorithmic stablecoins like TerraUSD (UST) are “unstable” and “should be avoided.” CeFi should focus on transparent asset-backed stablecoins, he said.

According to Brian Norton, chief operating officer at MyEtherWallet, crypto investors now have enough tools to realize that they do not have to rely exclusively on CeFi to make trades and mitigate risks.

Norton noted that crypto winters provide time and opportunity for people to learn how self-custody is done, adding:

“If you are relying exclusively on centralized platforms, even when the yields are great, you’re still giving up a good deal of control over your digital assets. [...] Self-custody is what crypto was built for, and what we are seeing right now is not unusual.”

Crypto self-custody is about letting consumers fully control their keys and the fate of their crypto, according to Adam Lowe, chief product and innovation officer at the Arculus crypto wallet.

“Self-sovereignty supports balance and self-regulation, and is beneficial to the entire digital asset ecosystem,” Lowe said in a statement to Cointelegraph.