Crypto security startup BitGo has received approval in the U.S. to act as a qualified custodian for digital assets.
The company, which has spent most of 2018 attempting to launch a regulated custodian entity, announced that the BitGo Trust had been approved by the South Dakota Division of Banking on Thursday, meaning it can now offer institutional clients a regulated storage solution for digital assets, said chief compliance and legal officer Shahla Ali.
Ali told CoinDesk that this may mark the first time a regulated custodian was designed and built from scratch specifically to target crypto assets.
“Currently … we offer an online hot wallet solution, which is available to anyone to download our software and store their coins. We also offer a custodial solution which is a combination of hot and cold wallet,” she said, although “that offering, though secure, is not regulated like the Trust.”
“The trust company will enable us to offer a qualified custodial offering that is regulated, that has the money laundering and know your customer requirements. Our custodian offering already has money laundering and KYC requirements … [but the Trust is] for institutional clients … especially for those who are registered advisors and broker dealers.”
Although BitGo Trust was specifically approved by South Dakota regulators, Ali noted that “generally other states will give you reciprocity in the sense that other states have money transmission laws and they’ll exempt you from money transmission requirements.”
BitGo representatives met with state regulators during the process to approve the Trust, she said. Now that it’s been approved, “our hope is to build this platform out, to really demonstrate to regulators and customers that this model can work and we can really build a great trust company that safeguards assets.”
Although BitGo has customers who are ready to begin storing their assets with the Trust, under South Dakota regulations, the general public has 30 days to file an appeal against the decision. The company said it is set to begin operations on a technological level, and will do so once the 30-day period has expired if no appeals are filed.
Once it does launch, BitGo will immediately begin taking custody of assets, indicated Ali.
Ali said the BitGo team has worked to ensure that its custodial offering matches what they believe customers will need to be comfortable storing digital assets. There are currently no standards for the space the firm is entering, so BitGo has had to develop its own to draw in clients.
“That’s certainly our hope, we believe that will happen, we’ve obviously engaged with many many large market makers who do not engage with the cryptocurrency space because they can’t custody their assets,” she explained. “Even large family offices that are managing their own funds want a secure option where they don’t have to fear [thefts].”
She hopes to draw both institutional investors, as well as family offices, and sees a secure custody offering as a tool to reassure investors and local governments alike that cryptocurrencies can provide value to these groups.
“I think you’ll see that the fringes will go back into the dark and cryptocurrency will come into the light and become a globally acceptable either a commodity or security, however it’s structured. I think it’ll alleviate some of the concerns the governments around the world have that it facilitates money laundering, that it facilitates drugs.”
BitGo has been working to launch as a regulated custodian since January 2018, when it originally announced it would acquire the Kingdom Trust Company. At the time, Kingdom Trust was a digital asset custodian with roughly $12 billion in assets under storage, as previously reported.
The move was aimed at bringing institutional money into the crypto space, CEO Mike Belshe told CoinDesk. BitGo hoped to attract investors who had skills other than technical proficiency in blockchain technology.
However, the deal fell through, and in May, the company announced its intention to build its own custodian from the ground up.
Marketing vice president Clarissa Horowitz told CoinDesk at the time that the decision was made after the company engaged with customers.
“We realized they would be best served by a custodian who was entirely focused on their assets,” she said.
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