XBTO and Zodia Custody Partner to Deliver Institutional-Grade Bitcoin Custody and Yield | Image by XBTO
XBTO and Zodia Custody Partner to Deliver Institutional-Grade Bitcoin Custody and Yield | Image by XBTO
- XBTO and Zodia Custody, each with operating entities regulated by the Financial Services Regulatory Authority (FSRA), combine custody and collateral mirroring with yield-generating Bitcoin strategies.
- The partnership offers banks, corporates, and Bitcoin treasury companies a secure and institutional-grade pathway to custody and earning yield on Bitcoin.
- Backed by Standard Chartered Ventures, Zodia Custody expands client offering with XBTO’s Diamond Hands Bitcoin Separately Managed Account (SMA) strategy.
Abu Dhabi, United Arab Emirates – XBTO, a global leader in institutional digital asset management, has partnered with Zodia Custody, the institutional digital asset custodian backed by Standard Chartered Ventures, to bring institutional-grade Bitcoin custody and yield solutions to market.
Through this collaboration, XBTO’s Diamond Hands BTC SMA clients will gain access to Zodia Custody’s regulated custody and collateral mirroring capabilities. In parallel, Zodia Custody clients will be able to allocate to XBTO’s Diamond Hands BTC strategy, giving them the ability to generate yield on their Bitcoin holdings in a fully compliant and secure environment, limiting counterparty risk that institutional clients would take.
The partnership will initially target key financial hubs, where institutional interest in Bitcoin is accelerating as both a reserve asset and a yield-generating instrument. This launch comes at a time when 86% of institutional investors say they have or plan to gain exposure to digital assets in 2025, signaling that regulated, yield-generating strategies are becoming mainstream. This trend is further evidenced by the rise of Bitcoin treasury companies, with the number of publicly traded firms holding BTC on their balance sheet reaching over 125 this year. While many have recently joined, a handful of pioneers have established themselves as the benchmark for this corporate strategy, showcasing the strategic foresight and long-term conviction necessary for successfully integrating digital assets into a traditional corporate framework. These include Strategy in the U.S., which now holds over 636,000 BTC, Japan's Metaplanet, and leading European entities like The Blockchain Group and H100 Group.
Karl Naïm, Group Chief Commercial Officer of XBTO, said: “Institutions want two things from digital assets: security and productivity. With Zodia Custody, clients gain the assurance of a regulated custodian backed by one of the world’s leading banks. By combining that with XBTO’s proven Diamond Hands BTC strategy, we are turning Bitcoin from a static reserve asset into one that can work for our clients without compromising on safety. This partnership reflects our vision of digital assets becoming a natural extension of institutional balance sheets.”
In a first-of-its-kind collaboration, the two entities have joined forces to offer a comprehensive solution that combines custody with yield-generation, addressing growing institutional demand for regulated, low counterparty-risk Bitcoin strategies. XBTO’s Diamond Hands BTC SMA strategy is an options-based strategy designed to generate in-kind yield by harvesting volatility, with a yearly target return of 5–8% p.a. (in BTC terms) and a volatility target of ~4% p.a. The strategy's primary objective is to accumulate more BTC with strong risk control. This regulated offering aims to provide institutional investors with a secure and transparent way to generate returns on their Bitcoin holdings within a robust regulatory framework.
Dominic Longman, Global Head of Markets, Zodia Custody, said: “At Zodia Custody, we believe digital assets must meet the same standards as traditional finance to be trusted by institutions. Partnering with XBTO allows us to extend that principle to yield generation, enabling clients to earn on their Bitcoin in a secure, sustainable, and regulated way.”
This initiative establishes a new benchmark for institutional Bitcoin solutions by uniting regulated custody with yield generation. For banks, corporates, and bitcoin treasury companies, it provides a pathway to hold and grow Bitcoin in a structure that meets the same standards as traditional finance. The firms plan to offer a similar offering on Ethereum, given the rising interest for ETH Treasury from companies.
About XBTO
From asset management to capital markets, XBTO helps clients capture opportunities in the age of digital assets. Founded in 2015 as a proprietary trading firm, XBTO built its foundation through nearly a decade of active participation in digital asset markets. Since 2023, XBTO has expanded into a full-service crypto quantitative investment firm. With a strong focus on Bitcoin, XBTO delivers risk-adjusted strategies across the alpha–beta continuum designed to perform across market cycles and regulatory environments. With decades of experience earned at the world’s leading financial institutions and deep expertise in digital markets, XBTO brings a rare combination of financial discipline and digital-native insight. XBTO operates under robust regulatory oversight, with operating entities regulated by the Bermuda Monetary Authority and the Financial Services Regulatory Authority in Abu Dhabi. It operates from key financial hubs including Bermuda, New York, Miami, London, Paris, and Abu Dhabi.
For further information on XBTO, please visit: xbto.com
About Zodia Custody
Zodia Custody is an institution-first digital assets platform backed by Standard Chartered, in association with Northern Trust, SBI Holdings, National Australia Bank, and Emirates NBD. Through the combination of its custody, treasury, and settlement solutions, Zodia Custody enables institutional investors around the globe to realise the full potential of the digital assets future – simply, safely, and without compromise. Zodia Custody is registered with the Financial Conduct Authority, Central Bank of Ireland, Commission de Surveillance du Secteur Financier, and holds a licence with the Hong Kong Companies Registry.
Zodia Custody implements the requirements of the 5AMLD and applies the same standards as Standard Chartered relating to AML, FCC, and KYC. It implements the requirements of the FATF Travel Rule. Zodia Custody Limited is registered in the UK with the FCA as a crypto asset business under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017. Zodia Custody (Ireland) Limited is registered with the Central Bank of Ireland as a VASP under Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (as amended). Zodia Custody (Ireland) Limited was established in Ireland in August 2021. Zodia Custody (Ireland) Limited is registered with the CSSF in Luxembourg as a Virtual Asset Service Provider in accordance with article 7-1 (2) of the law dated 12 November 2004 on the fight against money laundering and terrorist financing, as amended. Zodia Custody (Hong Kong) Limited is registered with the Registry for Trust and Company Service Provider with License Number TC009245 under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), Cap. 615 in respect of its custodial activities in digital assets.
For further information on Zodia Custody, please visit: https://zodia-custody.com/
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The full breakdown
In our first article, "Navigating Crypto Volatility: The Advantages of Active Management," we explored how the high volatility and low correlation of digital assets with traditional asset classes create unique opportunities for active managers. We discussed how these characteristics enable active managers to execute tactical trading strategies, capitalizing on short-term price movements and market inefficiencies. Building on that foundation, we now turn our attention to the unique market microstructure of digital assets.
Conducive market microstructure of digital assets
The market microstructure of digital assets - a framework that defines how crypto trades are conducted, including order execution, price formation, and market interactions - sets the stage for active management to thrive. This unique ecosystem, characterized by its continuous trading hours, diverse trading venues, and substantial market liquidity, offers several advantages for active management, providing a fertile ground for sophisticated investment strategies.
24/7/365 market access
One of the defining characteristics of digital asset markets is their continuous, round-the-clock operation.
Unlike traditional financial markets that operate within specific hours, cryptocurrency markets are open 24 hours a day, seven days a week, all year round. This continuous trading capability is particularly advantageous for active managers for several reasons:
- Immediate response to market events: Unlike traditional markets that close after regular trading hours, digital asset markets allow managers to react immediately to breaking news or events that could impact asset prices. For instance, if a significant economic policy change occurs over the weekend, managers can adjust their positions in real-time without waiting for markets to open.
- Managing volatility: Continuous trading provides more opportunities to capitalize on price movements and volatility. Active managers can take advantage of this by implementing strategies such as short-term trading or hedging to mitigate risks and lock in gains whenever market conditions change. For instance, if there’s a sudden drop in the price of Bitcoin, managers can quickly sell their holdings to minimize losses or buy in to capitalize on the lower prices.
Variety of trading venues
The proliferation and variety of trading venues is another crucial element of the digital asset market structure. The extensive landscape of over 200 centralized exchanges (CEX) and more than 500 decentralized exchanges (DEX) offers a wide array of platforms for cryptocurrency trading. This diversity is beneficial for active managers in several ways:
- Risk management and diversification: By spreading trades across various exchanges, active managers can mitigate counterparty risk associated with any single platform. Additionally, the ability to trade on both CEX and DEX platforms allows managers to diversify their strategies, incorporating different levels of decentralization, regulatory environments, and security features.
- Arbitrage opportunities: Different venues often exhibit price discrepancies, presenting arbitrage opportunities. For example, managers can buy an asset on one exchange at a lower price and sell it on another where the price is higher, thus generating risk-free profits.
- Access to diverse liquidity pools: Multiple trading venues provide access to diverse liquidity pools, ensuring that managers can execute large trades without significantly impacting the market price.
Spot and derivatives markets (Variety of instruments)
The seamless integration of spot and derivatives markets within the digital asset space presents a considerable advantage for active managers. With substantial liquidity in both markets, they can implement sophisticated trading strategies and manage risk more effectively.
For instance, as of August 8 2024, Bitcoin (BTC) boasts a daily spot trading volume of $40.44 billion and an open interest in futures of $27.75 billion. Additionally, derivatives such as futures, options, and perpetual contracts enable managers to hedge positions, leverage trades, and employ complex strategies that can amplify returns.
Overall, the benefits for active managers include:
- Hedging and risk management: Derivatives offer a powerful tool for hedging against unfavorable price movements, enabling more efficient risk management. For instance, a manager holding a substantial amount of Bitcoin in the spot market can use Bitcoin futures contracts to safeguard against potential price drops, thereby enhancing risk control.
- Access to leverage: Managers can use derivatives to leverage their positions, amplifying potential returns while maintaining control over risk exposure. For instance, by employing options, a manager can gain exposure to an underlying asset with only a fraction of the capital needed for a direct spot purchase, thereby enabling more capital-efficient investment strategies.
- Strategic flexibility: By integrating spot and derivatives markets, managers can implement sophisticated strategies designed to capitalize on diverse market conditions. For instance, they may engage in volatility selling, where options are sold to generate income from market volatility, regardless of price direction. Additionally, managers can leverage favorable funding rates in perpetual futures markets to enhance yield generation. Basis trading, another strategy, involves taking offsetting positions in spot and futures markets to profit from price differentials, enabling returns that are independent of market movements.
Exploiting market inefficiencies
Digital asset markets, being relatively nascent, are less efficient compared to traditional financial markets. These inefficiencies arise from various factors, including regulatory differences, market segmentation, and varying levels of market maturity. For example:
- Pricing anomalies: Phenomena like the "Kimchi premium," where cryptocurrency prices in South Korea trade at a premium compared to other markets, create arbitrage opportunities. Managers can exploit these by buying assets in one market and selling them in another at a higher price.
- Exploiting mispricings: Active managers can identify and capitalize on mispricings caused by market inefficiencies, using strategies such as statistical arbitrage and mean reversion.
The unique aspects of the digital asset market structure create an exceptionally conducive environment for active management. Continuous trading hours and diverse venues provide the flexibility to react quickly to market changes, ensuring timely execution of trades. The availability of both spot and derivatives markets supports a wide range of sophisticated trading strategies, from hedging to leveraging positions. Market inefficiencies and pricing anomalies offer numerous opportunities for generating alpha, making active management particularly effective in the digital asset space. Furthermore, the ability to hedge and manage risk through derivatives, along with exploiting uncorrelated performance, enhances portfolio resilience and stability.
In our next article, we'll delve into the various techniques active managers employ in the digital asset markets, showcasing real-world use cases.
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