Why it matters
Choosing a custody provider is choosing a counterparty. The provider's solvency, operational competence, and incentive alignment directly affect whether you can access your bitcoin when you need it. The difference between good and bad custody providers often becomes visible only under stress.
What to evaluate
Reserves: Does the provider hold 100% of client bitcoin at all times? Are reserves verified through proof of reserves? Any lending, staking, or rehypothecation introduces risk that withdrawals cannot be honored.
Segregation: Are client assets held separately from the provider's own holdings and from other clients? Segregation provides protection in bankruptcy or operational failure.
Withdrawal policy: What are the documented rules for withdrawals? How long do they take? What verification is required? Can the policy change without notice? Exitability is the clearest test of custody quality.
Security architecture: Cold storage, multi-signature, geographic distribution, access controls, and operational procedures. How does the provider protect keys from both external attacks and internal threats?
Transparency: What does the provider disclose about its operations, reserves, and security? Opacity is a warning sign.
Succession support: Does the provider offer beneficiary designation and documented succession processes? For long-term holders, continuity matters.
Warning signs
- Yield offerings that require lending client assets
- Vague or missing withdrawal documentation
- No proof of reserves or independent verification
- Commingled client assets
- Policies that can change unilaterally
Related terms
- Full-reserve custody
- Custodial vs non-custodial
- Counterparty risk
- Exitability
- Proof of reserves
- Segregated custody
