News for the bitcoin community got a little brighter Thursday (May 7) when itBit, the bitcoin exchange, announced it was granted an official business license from New York State’s Department of Financial Services.
The license will allow the bitcoin exchange to bring in customers across the country in a legal manner, which brings the exchange under the regulation of the state. itBit said its customer base began building yesterday once the license was given the stamp of approval from the state’s financial regulator. Benjamin Lawsky, the department’s superintendent of financial services, has been working on a proposal to implement a BitLicense, which would add another layer of regulation to the digital currency industry that some believe would add credibility and allow for more mainstream adoption.
“Our mission at itBit has always been to create a trusted, institutional-grade exchange and regulatory compliance is an important pillar of that mission,” said Charles Cascarilla, itBit CEO and co-founder. “Regulatory approval from the NYDFS allows us to serve as a custodian for our clients’ assets and expand our services to U.S. customers – the largest market of bitcoin traders in the world – and allows us to do so with the highest standard of care afforded by any Bitcoin company.”
Allowing itBit to align itself in a similar manner to how banks are regulated is a first for the bitcoin exchange community, and a victory for the bitcoin community, as it marks the first fully regulated digital currency exchange in the U.S.
“This is a big deal, not just for us, but for the entire Bitcoin industry,” Cascarilla told The New York Times.
The company also announced it has secured $25 million in additional financing and had appointed board members with financial and political ties. Those include Sheila Bair, former chairwoman of the FDIC; Bill Bradley, a former New Jersey senator; and Morgan Stanley Director Robert Herz.
“Bitcoin has the potential to transform the world of finance as we know it today,” Bradley said. “itBit can truly become the backbone of the entire Bitcoin ecosystem and help elevate its importance in finance, commerce and building new economies.”
Along with the oversight from the NYDFS, itBit has also partnered with an FDIC-insured and regulated U.S. banking institution that will cover insure balances up to $250,000. Client assets — including bitcoin and fiat currency — will be insured under these policies. That will ensure its clients get the same backing as they would at a bank.
While bitcoin has received its share of criticism — and rightfully so with its price volatility and ties to illegal marketplaces and activities (and bitcoin robots buying illegal goods) — the technology that powers bitcoin has helped give the digital currency a better name. Once the concept of the blockchain — the public distribution ledger that records a bitcoin transaction over the exchange network — has spread more mainstream, its name has gained more mainstream credibility.
“The technology behind Bitcoin and other virtual currencies could ultimately hold real promise, and it is critical that we set up appropriate rules of the road to help safeguard customer funds,” Lawsky said in a statement, according to the Times. “Indeed, we believe that regulation will ultimately be important to the long-term health and development of the virtual currency industry.”
With news of bitcoin exchanges folding almost on a weekly basis, this news is certainly a positive mark for an industry that has been flooded with plenty of bad press. Most recently, on an international scale, the big news has been about the collapsed Japanese bitcoin exchange that shut down last year; it was estimated that $400 million worth of bitcoin was lost or stolen in the bankruptcy of Mt. Gox. That incident is under investigation, but just recently it was announced that San Francisco-based Bitcoin exchange Kraken said it has agreed to help the Mt. Gox users by allowing them to trade bitcoin for free. The users have also recently started filing reports about how much bitcoin they lost.
By adding regulation requirements to itBit with its digital currency license, it allows bitcoin to manage its customers’ funds on its own, and the customers can be reassured those bitcoins are backed by a state-licensed operation. Similar to managing funds with a bank, itBit has to be held accountable to its customers. And hopefully obtaining the license pays off for itBit as the company said it spent more than a year obtaining the license, which the Times reported was a tedious and costly process. Before obtaining its license, it had been relying on its Singapore-based customers.
But itBit isn’t shy to the financial world, as its creators come with Wall Street backgrounds. Cascarilla has worked for Goldman Sachs and Bank of America, the Times reported, and COO Andrew Chang was from Google. Between its executive team, it’s got the FinTech part of its company covered.
itBit isn’t the only one with Goldman Sachs blood in it, though, as just last week Jeremy Allaire’s bitcoin startup Circle secured a major investment from Goldman Sachs and IDG Capital Partners to the tune of $50 million. Rival firm Coinbase also recently finished off a large growth that saw participation from the New York Stock Exchange and USAA. With the latest infusion of cash, Circle will now upgrade its services to allow customers to send and receive U.S. dollars as well as bitcoin.
Clearly, Wall Street might be taking bitcoin to the mainstream level, and with a little help paved by itBit, those bitcoin startups may eventually all be licensed and regulated. That might help bitcoin’s ‘Street’ credibility just a bit more.
The word regulation isn’t always a good thing — unless you’re bitcoin. And those in the bitcoin community who caught the news of the itBit bitcoin exchange getting its state license to operate are likely rejoicing that bitcoin is going more mainstream. And outside of that, the Winklevoss twins continue down their bitcoin path, BitReserve may launch in India and another bitcoin exchange shut down — but to join the remittance market. Another interesting week for bitcoin.
As always, if you have any news you’d like to share, please send it our way at contactus@pymnts.com.
Just like news about bitcoin, the Winklevoss twins don’t like to keep their names out of the spotlight. This week, they shared more about their bitcoin exchange, Gemini, which they expect to eventually get regulated as a U.S.-based currency exchange. The twins continued on their praise for the digital currency and spoke about why they’re so actively involved in the community.
“We’ve put our money where our mouth is. We don’t just have our skin in the game, we have our whole body in the game,” Cameron Winklevoss said at an event in New York City.
While it’s not a complete bust, BitSpark announced it was shutting down its bitcoin exchange. The exchange had reportedly experienced several outages, and while those issues seemed to be resolved, the company has decided to move its vision to another growing market: remittances. While the company recently raised an undisclosed amount of money (somewhere in the six-figure mark), it appears that money will go toward its remittance platform and not to helping develop its bitcoin side.
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