Core Insights - Traditional banks are facing significant operational and regulatory challenges as they begin to offer digital asset custody services, according to industry expert Joey Garcia [1][6] - The gap between traditional banking standards and the technical and regulatory frameworks of the crypto sector remains substantial, indicating that convergence is still a long way off [2][3] - The absence of a spot exchange-traded fund (ETF) has resulted in approximately $120 billion in digital assets being excluded from conventional custody systems, forcing firms to rely on intermediaries for security [4] Group 1: Challenges in Digital Asset Custody - As banks transition to digital asset custody, they will encounter major operational hurdles that could complicate their integration of these services [6] - The complexities and difficulties within custody and service will become apparent as banks begin to operate in this space [2] - Traditional banks layering digital services onto existing systems face deeper friction compared to firms like Xapo Bank, which evolved from a Bitcoin custodian to a fully licensed bank [4][6] Group 2: Industry Evolution and Partnerships - Xapo Bank's transition from a Bitcoin custodian to a banking institution provides it with a competitive advantage over traditional banks [6] - Garcia anticipates that banks will increasingly rely on third-party providers and integrated service models to navigate the digital asset landscape [6] - Discussions are ongoing regarding the integration of stablecoin payment services into traditional banking infrastructure, highlighting potential partnerships for future growth [5]