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Coinbase Moves with Cold Storage Trading via Custody Service, OTC Desk

Coinbase Moves with Cold Storage Trading via Custody Service, OTC Desk

US cryptocurrency exchange giant Coinbase has just announced that it plans to combine its custody service with its newly launched over-the-counter (OTC) desk in order to facilitate cold storage trading.

The move is partly a response to requests by Coinbase customers who have been pushing for cold storage trading since the recent launch of the OTC desk, mainly in order to sidestep the additional movement of client funds online before they can be traded.

Coinbase launched its OTC cryptocurrency trading desk at the end of 2018 again reacting to “client demand”, as well as gearing towards broadening its customer base to include more institutional clients. Its cryptocurrency custody was launched in July of 2018 for much the same reason in order to attract large financial organizations to the exchange.

The new cold storage trading facility promises to a route to the future of trading according to Sam McIngvale, the CEO of Coinbase Custody, who sees this as “the defacto way to trade”. However, the newly-announced feature rather follows in the footsteps of blockchain security company BitGo who already launched their own custody trading product earlier this year.

There are those that feel that Coinbase Custody could be far better than BitGo for this simplified trading process, due to its pull on larger institutional clients; a potential client base which has firmly been in the San Francisco-based exchange’s sights for some time. John McAfee is one who has long viewed this client pool as a future crypto industry game changer; long predicted maybe, but as yet still yet to become reality.

Institutional investors are preparing to enter the cryptocurrency market with a vengeance. They are generally long term investors and will be pumping billions into the market. Expect the top ten coins to go through the roof fairly quickly. The bulk of alt coins will soon follow.

— John McAfee (@officialmcafee) May 21, 2018

This won’t stop Coinbase trying though, and cold storage trading is another step down that road.

 

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US Crypto Regulations Between a Rock and a Hard Place

US Crypto Regulations Between a Rock and a Hard Place

In the midst of the delay for the approval of Bitcoin exchange-traded fund (ETF) applications after several rejections, and current uncertainty regarding regulatory framework, US Securities and Exchange Commission (SEC) Commissioner Hester Peirce provided insights into the matter as an opportunity for better industry development.

Last week, Heister made comments on the issues of state regulation at the University of Missouri School of Law where she opined that “entrepreneurship and innovation do not have the happiest relationship with innovation”, which may be the core reason why crypto ventures have suffered in the hands of most regulatory systems.

The SEC’s clamp down on non-compliant ICOs (issuing securities disguised as utility tokens), its rejection of Bitcoin ETF applications, and somewhat deliberate delay in providing a regulatory framework as regards the industry may have a more logical than malicious intent behind it. Innovations, while they make life easier most of the time, always come outside the norms, especially those of the regulatory system and often times drives regulators to accept changes despite skepticism.

“Regulators, for their part, tend to be skeptical of change because its consequences are difficult to foresee and figuring out how it fits into existing regulatory frameworks is difficult,” she said, implying that it’s not an easy task for the SEC to reject what seemingly looks like a financial innovation in an attempt to weigh and understand the situation correctly.

The last financial crisis has made it easier for trust issues to thrive, especially on the part of the regulator, given that some ascribe the crisis to be due to “financial innovations”. Peirce pointed out that “…every innovation — even one that almost everyone agrees is good — carries with it some risk”, something currently agreeable with the cryptocurrency system.

Accordingly, since innovations can be unpredictable, so caution must be applied when drafting regulatory frameworks, especially for a new industry such as blockchain and its underlying assets. Peirce continues by saying that “as regulators, therefore, we must allow innovation to proceed, even as we put in reasonable safeguards and watch for unanticipated consequences”, and still, it has to come with no comprise to the securities laws in place. It behooves one to imagine where the true line of trade-offs will be drawn, seeing that the core structure of the crypto industry lies in decentralization, which by implication makes it harder for any regulator.

Still, the regulatory polarity has created distinct shades of gray areas around the world. With the Chinese government adamant with its crypto ban, the Indian government chose a rather bizarre stance — first with a ban on banking services to crypto related ventures, and then planned to develop a state-backed cryptocurrency, which it shelved later on. Meanwhile, other jurisdictions have launched out to attract the “rejected”, by providing a safe haven to crypto ventures, and a few nations are developing their own state-backed crypto to augment their economies.

In the UK, the principal regulator has extended an invitation to the public through its consultation paper to better assess a possible way forward for industry regulations. It said in late January: “We are consulting on Guidance for crypto assets to provide regulatory clarity for market participants.” Meanwhile, in the Middle East, the United Arab Emirates (UAE) has also hinted on possible ICO regulations to be introduced later this year.

So far, the crypto industry has had checkered developments and have more recently been in a stalemate (regardless of minor spikes in market dynamics), and many have been waiting eagerly for the next bull-run trigger. It’s basically what most crypto enthusiasts talk about these days, consequently, dialing down tech innovation, development and mass adoption of crypto products — at least, for the innovations that they stand for — and are relying on adjuncts gunning for more institutional involvement that would supposedly propel the market further.

While the US SEC does recognize the potential this innovative technology may provide, as Peirce says. “the United States has benefited greatly from the relative importance of non-bank financing”, supposedly placing them on par with the capital market. This further buttresses the point made by SEC boss Jay Clayton who viewed crypto as a “promise for adding efficiency to our [capital] marketplace”.

However, the regulatory watchdog maintains a stance of balance that involved protecting the interests of investors as market volatility, manipulation, hacks, frauds, exchange illiquidity, and a host of other unforeseen consequences from the unstandardized cryptosystem remain legitimate concerns.

Perhaps, when the SEC, as well as other financial regulators, have finally regulated the industry, these problems will be adequately tackled. Meanwhile, the regulator itself is waiting for the maturity of the industry marked by improved oversight on market surveillance, definitive asset classification, and airtight custody solutions, before embracing the industry wholeheartedly. But it still remains to be known at what cost?

The good news so far is that earlier this year, a bill was introduced in the House to help with asset classification, that partly takes care of one problem. Nasdaq introduced its SMARTS Market Surveillance solution which may have provided precedence in the direction of play towards controlling market manipulation. On the subject of custody solutions, crypto ventures are urged to ensure best cybersecurity practices. Fidelity, Coinbase, Gemini, BitGo, Ledger, ItBi and even Goldman Sachs are among many reportedly racing toward that end.

Peirce’s overall sentiment in a manner of speaking, perhaps one shared on both sides of the tussle is that the delay in drawing clear lines may actually allow more freedom for the technology to come into its own.

 

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BitGo Enters Cold Storage Crypto Trading

BitGo Enters Cold Storage Crypto Trading

A company which already has enticed both Galaxy Digital Ventures and Goldman Sachs in the past has developed a platform enabling clients to trade cryptocurrency straight from cold storage.

Palo Alto-based crypto storage firm BitGo has announced the new service just days after the hacking of cryptocurrency exchange Cryptopia which saw more than ETH 19,391 (USD 2.4 million) and Centrality tokens worth USD 1.18 million transferred to unknown wallets.

Bitgo has chosen Genesis Global Trading for the service which ensures that customer buy and sell orders will never leave cold storage as SEC and FINRA regulated Genesis hold a cold storage wallet with BitGo. Mike Novogratz, Bitcoin pundit and CEO of Galaxy Digital Holdings Ltd, claims these types of storage solutions could easily promote the next bull run, commenting:

“I think the next move up is going to need custody from a trusting source… It’s going to need a little more regulatory clarity… We wouldn’t take out USD 10,000 without those two things because that’s what brings the institutional investors in. But we’re going to get there.”

BitGo has announced that Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Litecoin, Ripple, and ZCash will all be available under the new system

 

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Bitcoin to Be Available on Ethereum Network via Wrapped Bitcoin

Bitcoin will soon be available on the Ethereum network via a new Ethereum ERC-20 token called Wrapped Bitcoin (WBTC). This will allow users to exchange Bitcoin on Ethereum-based decentralized exchanges (DEXs), and use Bitcoin on Ethereum decentralized apps (Dapps). Every WBTC will be backed 1:1 by Bitcoin in a reserve operated by BitGo, a qualified cryptocurrency custodian.

Merchants affiliated with Wrapped Bitcoin will send Bitcoin to BitGo, who will store them in a secure wallet, and simultaneously create a smart contract that generates the token. Unlike stablecoins like Tether, Gemini Dollar, PAX, and USD Coin, audits will not be required to prove reserves, since all data about WBTC will be viewable on the blockchain in real-time. BitGo CEO Benedict Chan says, “The beauty of that is all we have to do is put up a webpage and show all the addresses that have the Bitcoins… and at the same time, people will be able to check how many WBTC are in existence just by looking… on the Ethereum blockchain.”

Merchants can also burn WBTC and redeem the Bitcoins and, therefore, users can deposit the tokens with merchants to receive Bitcoin. This will keep Wrapped Bitcoin pegged at a 1:1 ratio with Bitcoin at all times.

Users can obtain WBTC from merchants that are officially part of the network but users must go through know your customer (KYC) and anti-money laundering (AML) requirements before receiving Wrapped Bitcoin.

The decentralized exchanges Kyber Network and Republic Protocol spearheaded the WBTC project, but numerous other Ethereum DEXs have already jumped on board, in addition to some Ethereum Dapps. These include MakerDAO, Airswap, IDEX, Radar Relay, Hydro Protocol, Compound, Dharma, Set Protocol and Prycto.

WBTC is becoming an Ethereum-wide movement since a token that represents Bitcoin has been sought on the Ethereum network. This will allow Bitcoin to easily be traded on DEXs, which can lead to an increase in trading activity and liquidity. Additionally, Dapp users can use Bitcoin instead of an Ethereum token. Bitcoin is the most stable, most reputable, and most valuable cryptocurrency, and crypto users generally prefer it for business purposes, versus using other crypto which can be quite volatile.

WBTC seeks to constantly evolve under the guidance of a Decentralized Autonomous Organization (DAO), planning to progressively add more features, merchants, and custodians. Loi Luu, the CEO of Kyber Network, says, “One of the main reasons why many projects support this initiative is because there is a DAO that is going to govern the whole project including making major upgrades, adding more features, adding more merchants, even adding new custodians as well.”

 

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BitGo Becomes Officially Qualified Crypto Custodian in United States

BitGo has received approval from the South Dakota Division of Banking to be a public South Dakota Trust Company. This makes it an officially licensed crypto custodian in South Dakota, and the rest of the United States, because other states generally practice reciprocity when it comes to this sort of license.

BitGo claims to be the first qualified crypto custodian in the United States, although, there are certainly other major crypto custodians active in the United States such as Coinbase and Xapo. At the least, BitGo is probably the custodian with the most cryptos available – more than 75, including major cryptos like Bitcoin and Ethereum, and numerous Ethereum based tokens.

Mike Belshe, the CEO of BitGo had this to say:

“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”.

In this statement is a direct jab at Coinbase, which runs both an exchange and a custodian service for crypto.

Indeed, crypto custodianship is an essential piece of infrastructure for institutional investors, and BitGo will be specifically targeting institutional investors with this new trust company. Institutional investors deal with large amounts of money in the USD 1 million to USD 10 billion range, and they need a crypto custodian to bank their crypto to ensure no chance of getting hacked or robbed. Crypto custodians are generally insured, leaving no chance of losing crypto for people using a true crypto custodian service.

Also, when dealing with large amounts of crypto, it is essential to follow know your customer (KYC) and anti-money laundering (AML) laws to ensure no violations of regulations. BitGo will make sure institutional investors don’t have any run-ins with the law.

Crypto custodians like BitGo Trust Company are essential for crypto hedge funds. There are at least 466 crypto hedge funds and that number is rapidly growing. Crypto hedge funds will link up with crypto custodians, creating optimal investment conditions for institutional investors that want crypto. This institutional investment infrastructure could lead to the next big crypto rally.

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BitGo Becomes Most Diverse Crypto Custodian After Adding 57 ERC-20 Tokens

BitGo has added 57 ERC-20 tokens to its cryptocurrency custodian service, making it by far the most diverse cryptocurrency custodian in the world. It plans on adding even more ERC-20 tokens. This rapid expansion of BitGo’s custodian service comes only two months after it launched the service in May 2018, following the acquisition of licensed qualified custodian Kingdom Trust regulated by the South Dakota Division of Banking.

Previously, BitGo only offered services for Bitcoin, Litecoin, Bitcoin Cash, Ripple, Ethereum, Royal Mint Gold, and Bitcoin Gold, and such a small selection of cryptocurrencies is typical for cryptocurrency custodians. Likewise, Coinbase’s custodian service, which caused a reversal in the Bitcoin bear market when it launched in July 2018, only offers support for five cryptocurrencies. Cryptocurrency custodians want to be sure that they only offer services for highly secure cryptocurrencies. Cryptocurrencies with low market caps and less mining power securing them are prone to 51% attacks, which causes theft and market crashes that scare away investors.

ERC-20 tokens are based on the Ethereum blockchain and, therefore, are extremely secure since Ethereum has a tremendous amount of mining power securing its network. This makes ERC-20 tokens an ideal addition for cryptocurrency custodians. Indeed, Coinbase announced in March 2018 that it was planning on adding support for all ERC-20 tokens, but it seems BitGo beat them to the punch.

The 57 ERC-20 tokens that BitGo has added include 0x (ZRX), Augur (REP), Golem (GNT), OmiseGo (OMG), Storj (STORJ) and Zilliqa (ZIL).

Even though these tokens all use the Ethereum blockchain, they are distinct cryptocurrencies, and many of them are top ranking cryptocurrencies. In general, it is expected that Bitcoin will be the first choice for institutional investment since it is considered the gold standard of crypto and has the most liquidity, leading to the least slippage.

 

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BitGo Offers New Crypto Custodial Products for Financial Firms

BitGo has released a new suite of cryptocurrency custodial products aimed at Wall Street financial firms. It is claimed that 15% of Bitcoin transactions occur through BitGo’s wallet services, with BitGo software processing over USD 10 billion of cryptocurrency transactions per month. BitGo is seeking to attract USD 20 billion that it expects institutional investors to commit to cryptocurrency.

Institutional clients like hedge funds and stock brokerage firms require a custodian service that follows all of the laws and is properly regulated before they are willing to invest money. This is why BitGo acquired the Kingdom Trust Company as well as Kingdom Services earlier this year.

Kingdom Trust is a licensed qualified custodian regulated by the South Dakota Division of Banking which has over 100,000 clients with over USD 12 billion of assets. Using Kingdom Trust’s infrastructure, BitGo will offer legal and trustworthy custodianship of cryptocurrency assets, giving big investors and firms peace of mind when deciding to add cryptocurrency to their portfolio. The acquisition of Kingdom Trust still has to be approved by government regulators, but that hasn’t stopped BitGo from launching services managed by Kingdom Trust.

Having a trustworthy custodian makes cryptocurrency investment easier for investors, since they don’t have to deal with any of the technical details. They simply send their money to BitGo with an order for which cryptocurrencies they want, and BitGo takes care of buying the cryptocurrency on an exchange and securely storing it in a wallet.

Currently, BitGo supports 20 different cryptocurrencies and is looking to add even more so that it eventually provides custodial services for every cryptocurrency it deems worth investing in. BitGo offers three tiers of service: qualified custody where cryptocurrency is stored and secured with Kingdom Trust, institutional custody where clients manage BitGo wallets, and completely self-managed custody. This range of services provides solutions from consumer to institutional needs.

The value of all cryptocurrencies combined is worth just over USD 400 billion as of this writing, and has been growing by orders of magnitudes the past several years. BitGo’s custodial services open up cryptocurrency to big investors like never before and will provide a conduit for money to pour into the cryptocurrency market from Wall Street. Trillions of dollars are invested in the stock market, and BitGo’s services will facilitate some of that money to be diverted into cryptocurrency.

 

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