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There's been another major step toward mainstream adoption for the digital currency Bitcoin.
The New York State Department of Financial Services (NYDFS) granted a trust company charter to New York-based itBit last Thursday.
Operating under the oversight of the NYDFS will provide the kind of protection and security U.S. consumers expect. For example, itBit will be subject to state audits. And like a bank, itBit also will be required to maintain a certain amount of capital.
And just to make sure all its bases are covered, itBit has arranged to provide FDIC insurance on the fiat balances of customer accounts.
"So far, Bitcoin hasn't approached regulation in a constructive way to allow mainstream use," itBit CEO Charles Cascarilla told the Los Angeles Times. "We made the commitment not to take customers until we could do it on a really holistic and nationwide basis."
The emphasis on safety and security is intended to build confidence in the itBit Bitcoin exchange. Still-fresh memories of the dramatic failure of the Japan-based Mt. Gox exchange last year, in which 850,000 bitcoins worth (at the time) about $480 million were lost, mean new Bitcoin exchanges must go that extra mile.
The itBit charter is not a BitLicense, which the NYDFS has not yet finalized. Instead, it falls under a New York state banking law that regulates trusts.
The charter approval is quite an achievement for the three-year old itBit. The company also announced Thursday it had secured $25 million in Series A venture capital funding.
ItBit Not the First U.S. Bitcoin Exchange
The itBit exchange is actually the second U.S. Bitcoin exchange to go live.
Coinbase launched its exchange in January, but is not available in all 50 states. Coinbase took a different regulatory route, applying for money transmitter licenses in each state. Availability of the Coinbase Bitcoin exchange has grown from 24 states at launch to 27 states and Puerto Rico today.
A third U.S. Bitcoin exchange, Gemini, is also expected to launch this year. Gemini is a project of Tyler and Cameron Winklevoss, who are also awaiting SEC approval of their Bitcoin ETF, the Winklevoss Bitcoin Trust.
That itBit has managed to become the first fully regulated, nationwide Bitcoin exchange may have something to do with these big names who are involved...
Three influential people who were named to itBit's board of directors yesterday were also listed on itBit's February application to NYDFS. They were: Former FDIC chairperson Sheila Bair; former New Jersey Senator Bill Bradley; and former Financial Accounting Standards Board (FASB) chairman Robert Herz, who was also a senior partner at PricewaterhouseCoopers.
In addition to helping itBit win NYDFS approval, the involvement people of this caliber shows how far Bitcoin has come in the past 18 months.
Remember, in February of 2014, as Mt. Gox was collapsing, Sen. Joe Manchin, D-W.V., called for a ban on Bitcoin. Today, we have a retired U.S. senator serving on the board of a Bitcoin startup.
And the finance veterans on the board fit a pattern of rising Wall Street involvement:
- Last year former SEC Commissioner Arthur Levitt joined payment processor Bitpay as an advisor.
- In January the New York Stock Exchange participated in a $75 million VC funding round for Coinbase.
- In March former JPMorgan Chase & Co. (NYSE: JPM) head of global commodities Blythe Masters became chief executive of Bitcoin startup Digital Asset Holdings LLC.
- Last week Goldman Sachs Group Inc. (NYSE: GS) participated in a $50 million funding round for Bitcoin startup Circle Internet Financial.
- Today (Monday) Nasdaq OMX Group said it was launching a pilot project to use the Bitcoin blockchain to settle trades in the Nasdaq Private Market. This small marketplace facilitates pre-IPO investing in private companies. The idea is similar to Overstock Inc. (Nasdaq: OSTK) CEO Patrick Byrne's Medici project.
The itBit exchange not only is a part of this trend, but will accelerate it.
A Bitcoin Exchange Built for Wall Street
[epom key="ddec3ef33420ef7c9964a4695c349764" redirect="" sourceid="" imported="false"]The goal of the itBit Bitcoin exchange is to provide the kind of robust, reliable infrastructure that will make Wall Street-types comfortable with investing in the digital currency.
The growing coziness between Bitcoin and Wall Street is a key piece of the puzzle that will transform the digital currency from a curiosity used only by the devoted few to an integral part of our financial system.
We've seen two U.S. Bitcoin exchanges launch in four months, with another that could launch any day now. That's worlds apart from where we were a year ago, or even six months ago.
More and more, Wall Street is realizing that Bitcoin is the future of finance.
"Bitcoin has the potential to transform the world of finance as we know it today," itBit board member Bill Bradley said in a statement. "ItBit can truly become the backbone of the entire Bitcoin ecosystem and help elevate its importance in finance, commerce, and building new economies."
Follow me on Twitter @DavidGZeiler.
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- Los Angeles Times: N.Y. Issues Charter to Bitcoin Firm
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.