BitGo Receives Regulatory Approval for Custody Solution
Digital currency storage company BitGo has announced their custody solution has been approved as a public trust company in the U.S. state of South Dakota. The news could be a step towards broader acceptance by Wall Street of custodial solutions for digital assets, something that is currently high on the priority list for the crypto and blockchain industry.
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BitGo Finally Gets Its Trust Company
The approval of BitGo Trust Company as a public trust company by the South Dakota Division of Banking means that the firm can legally act as a custodian for cryptocurrencies or other digital tokens on behalf of other parties. The news appears to mark the end of Palo Alto-based BitGo’s quest to acquire a trust company, as in May of this year, the company cancelled its plans to acquire Kingdom Trust Company, a South Dakota-charter trust company, which BitGo had previously sought to do in January. At the time of the shelving, BitGo said it instead planned to create its own regulated custodial offering, which it has now done.
The CEO of BitGo, Mike Belshe, said in a statement that:
“Custody has been the missing piece of cryptocurrency market infrastructure and this gap has kept institutional investors out of the market. Traditional custodians don’t have experience handling cryptocurrency. Exchanges that double as custodians present a conflict of interest and raise regulatory concerns. BitGo Trust Company is a qualified custodian, and therefore the only custody offering that delivers the highest levels of both security and regulatory compliance.”
BitGo’s custody solution uses cold storage technology with bank-grade Class III vaults and allows clients to set up custom permissioning policies, such as requiring approvals from certain individuals, spending limits, and whitelists. Accounts can have multiple users with different roles that fit with how a client’s organization is structured.
BitGo Looking to Move Beyond Criticism for Involvement in 2016 Bitfinex Hack
BitGo has been offering a custody solution that allows customers to store more than 75 cryptocurrencies and tokens in a storage system that has both hot and cold wallets. The new approval should make the service more attractive to organizations, such as investment firms, family offices, or trusts, who hold digital assets either directly or on behalf of their clients.
In July of this year, BitGo announced that it would provide support to 44 new Ethereum ERC20 tokens in addition to 13 they already offered, and that they planned to expand to over 100 by the end of the year. In explaining the move, they said their institutional clients, who invest in cryptocurrencies, wanted a variety of digital assets to choose from in order to improve their returns.
BitGo was the subject of some controversy after the cryptocurrency exchange Bitfinex was hacked for more than $72 million USD in August of 2016. BitGo and Bitfinex had announced a partnership in 2015 whereby Bitfinex had create a digital asset storage system for its customers using BitGo’s multi-signature wallets. These wallets required multiple parties to sign off on transactions and divided up the private keys between Bitfinex and BitGo.
After the hack, BitGo denied that its servers had been breached. Some have speculated that after gaining access to Bitfinex’s keys, the attacker was able to send transactions requests to BitGo, who signed them without knowing that the requesting party was a hacker.
Crypto Industry Motivated to Crack the Custody Problem
Custody of digital assets has emerged as a crucial issue as new money has poured into cryptocurrencies in the past year, some of it from hedge funds and other large investors. Traditional custodial firms on Wall Street and elsewhere have remained wary of cryptocurrencies, though American custodian bank Northern Trust said in a June report that “digital currencies, with appropriate regulatory oversight, are likely to play a role in shaping future developments in our industry.”
Multiple companies are working on custody solutions, including Coinbase, which officially released its Coinbase Custody service to the public in July. Further, Xapo has long offered a offered a custody service with vaults on five continents, and in June a startup called Swiss Crypto Vault announced a custody service for a half dozen cryptocurrencies and tokens.
Besides allowing investors to hold onto their digital assets safely, custody is also crucial for firms looking to get governmental approval for a crypto ETF. The latest company rumored to be trying their hand at this game is Coinbase, which reportedly contacted Wall Street firm BlackRock for advice on how to get an ETF approved by American regulators
Have your say. Does the news from BitGo mean that a crypto ETF is more likely? Or will Wall Street remain skeptical of crypto startups, regardless of whether they have regulatory approval?
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