In brief
- BitGo is now licensed as a crypto custodian in New York.
- That brings Wall Street to crypto's door.
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New York’s institutional investors just got another route into crypto. This time through BitGo, the Silicon Valley crypto prime broker that custodies over $30 billion. BitGo announced today that it has secured a license to set up a trust from Wall Street’s toughest regulator.
The new license, issued by the New York State Department of Financial Services (NYDFS), allows BitGo to store and trade the funds of institutional investors—wealthy hedge funds, banks and private equity firms. Since BitGo, opened its doors in 2012, it has become one of the most reputable prime brokerages and custodians in the biz.
Previously, BitGo only held a trust charter in South Dakota, meaning it could serve institutional investors in most states apart from the one that really mattered—New Yawk. Under the new charter, Wall Street firms can invest in and store cryptocurrencies through BitGo.
Jeff Horowitz, Chief Compliance Officer of BitGo, told Decrypt the charter would “allow us to open up a new market of institutional customers,” particularly those teetering on the edge of becoming Bitcoin believers. “The gates will open,” he said, to “the financial capital of the world.”
“This has the ability for further investment in [crypto],” said Horowitz, who has received “tremendous outreach from customers who have been waiting for us to get this license.” He declined to disclose the names of those customers but said they’re wealthy and willing.
BitGo is far from the only choice—this is the eighth crypto trust charter the NYDFS has issued. Paxos won the first in 2015, five months before the Winklevoss twins won their trust charter for Gemini. Since then, Coinbase, NYDIG (through Stoneridge), Bakkt, Fidelity and GMO-Z.com have received trust charters.
But BitGo claims it is the only integrated custodian and prime broker for institutional investors. However, others, among them the Intercontinental Exchange’s Bakkt, are hot on its heels.
The trust license, which BitGo applied for in August, is not to be confused with the BitLicense, the NYDFS’s crypto money transmission license, which the regulator has issued to a handful of crypto companies.
And, though the trust grants BitGo similar fiduciary powers to a bank, these trust charters should not be confused with the banking charters recently awarded to crypto companies, such as Kraken and Avanti, after the Office of the Comptroller of the Currency (OCC) clarified guidelines last year. BitGo's new license is also separate from the OCC’s September 2020 clarification that national banks can custody crypto.
BitGo is also the sole custodian of WBTC, or Wrapped Bitcoin, an Ethereum-based derivative of Bitcoin with a market cap of $6.3 billion that Bitcoin HODLers use to invest in Ethereum-based decentralized finance protocols. However, the charter does not allow New York financiers to trade WBTC, since WBTC is offered through BitGo Inc, a separate entity.
In any case, “it’s early days,” said Horowitz. Institutions, he said, “are still wrapping their heads around crypto in general,” let alone decentralized finance, the incredibly complex and technical network of financial applications that, combined, hold more than $41 billion, according to DeFi Pulse, a DeFi metrics site that lists many prominent DeFi protocols.
But the Bitcoin market is growing fast. In December 2020, BitGo custodied $16 billion in assets, about half the amount that it custodies today. BitGo attributes that to Bitcoin’s rising price and a flurry of new institutional clients.