The first qualified custodian has arrived

Join thousands of others who receive this daily analysis of crypto markets & news in their inbox every morning - subscribe now.

A regulated custody solution has finally arrived.

BitGo, a blockchain security company, received a state trust company charter from the South Dakota Division of Banking late last week. This milestone cements BitGo as the only qualified custodian in the United States built exclusively for digital assets.

Many institutional investors have previously been wary of entering the crypto markets due to the lack of qualified custodians. This approval will help in a few ways:

  1. Investment Criteria — Institutional investors have to check the boxes on their criteria list before making an investment. The qualified custodian requirement gives institutions peace of mind that their assets are (1) stored securely, (2) accurately reported, and (3) within their control when the investment team looks to buy or sell.

  2. Higher Bar of Quality — Qualified custodians are required to meet certain security thresholds, file financial audits & monthly disclosures, and ensure full compliance with existing KYC & AML rules. This focus on process, compliance, and transparency creates higher levels of trust between investors, fund managers, custodians, and regulators.

  3. Retail Products — A number of digital asset retail products (ex: ETFs) have been denied by regulators over the course of 2018. Numerous times the denials have been accompanied with language citing the lack of qualified custodians and/or the inability to ensure safe, unmanipulated markets. BitGo can now solve the qualified custodian issue which should bring the industry closer to retail product approvals.

BitGo CEO Mike Belshe highlighted the importance of his company’s accomplishment by saying, “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.

This is a big leap forward but I wouldn’t anticipate an immediate flood of institutional capital into the crypto markets. The recent 80%+ drawdown in prices has scared off a subset of institutional investors, while a different subset is still working to understand how best to deploy capital into the space. Do they buy Bitcoin? Invest in venture funds? Take beta exposure through an index?

Each institution will slowly work through their desired (1) investment strategy, (2) custody solution, and (3) risk management plan. Once they get comfortable, it wouldn’t surprise me to see initial investment sizes of 10 to 200 basis points. Every institution’s goals and portfolio is different so there is no one size fits all solution.

I’m confident that 0% exposure to digital assets is the wrong answer though. BitGo’s qualified custodian product should help more institutions #GetOffZero and put skin in the game.

We’re watching the creation of a new financial system. Institutions can’t afford to be left behind.


The “Off The Chain” podcast has been downloaded 40,000+ times in 120 countries. You can listen to the latest episode with Gabor Gurbacs, Head of Digital Assets at VanEck now: Click here for Off The Chain podcast


They left public radio to try their fortunes on the blockchain: Manoush Zomorodi’s eyes used to glaze over when she heard someone bring up blockchain. Now she talks about it all the time as the host of “ZigZag,” a podcast that will go into its second season next month. Zomorodi, the former host of the WNYC technology podcast “Note to Self,” created “ZigZag” with Jen Poyant, who was the executive producer of the WNYC show. It is the first of what the two hope will be many podcasts from the production house they formed this year in partnership with Civil Media, a new company built on blockchain technology. Read more.

Crowdfunding site republic announces token sale: Republic, a site where aspiring businesses can seek investment from the general public, has a new business plan of its own: sell digital tokens that will deliver payouts to investors. CEO Ken Nguyen did not provide many details of the plan, but said the token sale would occur in a few months. Read more.

Coinbase's new NYC office to hire 100 in Wall Street crypto push: Coinbase has aggressive growth plans for its newly opened New York office, which caters to institutional clients. The digital asset exchange plans to expand the operation to 150 employees next year, from 20 currently. "When we saw the market begin to correct, which we all expected, institutions didn't lose interest," said Adam White, general manager of Coinbase Institutional. "It was exactly the opposite." Read more.

Civil believes this ICO model lets it sell anyone tokens legally: Civil, the blockchain startup looking to disrupt media, will be offering its crypto token to investors of all kinds – both accredited and unaccredited – next week. The much maligned initial coin offering has come under intense fire recently for everything from sinking ethereum's price to scuttling whatever hard won credibility the industry managed to gain before mania built up around tokens. Read more.

The $1 billion Tezos blockchain is officially launching Monday: The "experimental" phase of the Tezos blockchain is soon to conclude. The Tezos Foundation will officially launch the protocol on Monday, meaning it will be fully operational and run by its community. Still, the designation is admittedly a semantic one. Tezos launched a mainnet, or live blockchain version of its software at the end of June, and since then its XTZ tokens have been tradeable. Read more.

How bitcoin helped track down suspects in the Russia investigation: Buried in last month’s special counsel indictment of 12 alleged Russian spies was an explanation of how law enforcement used the blockchain, the network which facilitates bitcoin transactions, to track and identify the suspects through their cryptocurrency transactions.Read more.

If you enjoy reading “Off The Chain,” click here to tweet to tell others about it.

Nothing in this email is intended to serve as financial advice. Do your own research.