Blockchain security startup Bitgo has announced that it has received regulatory approval in the U.S. to offer cryptocurrency custody services. With the move, BitGo becomes the latest company to throw its hat into the crypto custody ring as the market prepares to welcome large institutional investors who have previously been put off by crypto’s substantial custody risk.
BitGo announced on Thursday, Sept. 13, that it had received this regulatory approval in the form of a state trust company charter from the South Dakota Division of Banking. With the move, it now becomes the only regulated custody service available on the market that is offered exclusively for digital asset storage.
While the crypto market has been in a downturn for much of 2018 and BitGo is potentially opening itself to a level of regulatory scrutiny that other cryptocurrency startups do not face, co-founder and CEO Mike Belshe believes that the market reception for a regulated crypto custody offering will make any sacrifices worth it.
In his words:
“This is the missing piece for infrastructure — it’s a treacherous environment today. Hedge funds need it, family offices need it, they can’t participate in digital currency until they have a place to store it that’s regulated […] This is early stages in an industry that’s volatile right now. We’re in a down cycle in terms of where we’re going, but the institutions see an opportunity. It’s going to progress quickly.”
With the approval, BitGo is now required to regularly file financial audits and comply with AML and KYC regulations in addition to monthly disclosure filings. According to Belshe, the plan is for BitGo to eventually become a broker-dealer, but at the moment there is no set timeframe for this to happen.
BitGo joins a growing number of companies with cryptocurrency custody offerings including Citigroup, Coinbase and Gemini, all of whom are targeting the same institutional investment market ahead of the expected entry of traditional investment. Bernstein analyst Christian Bolu belives that there is sufficient space for new market entrants to operate.
Quoted by CNBC, he said:
“As the crypto-asset class seasons and institutional demand builds, there are a plethora of opportunities for traditional firms to engage in the eco-system. These include the provision of custodial and asset management services as well as traditional brokerage functions like market-making.”
In January, CCN.com reported that BitGo had entered into an agreement to acquire the $12 billion digital asset management firm Kingdom Trust. BitGo later shelved those plans in favor of launching its own qualified custodian.
Update 9/17: A previous version of this article stated that BitGo had acquired Kingdom Trust. While the company announced in January that it had entered into an agreement to purchase Kingdom Trust, the firm later announced that it would launch its own qualified custodian.
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Last modified: May 20, 2020 5:59 PM UTC