The Gemini Bitcoin exchange, one of several Bitcoin-related projects that the Winklevoss twins have in the pipeline, has obtained two key approvals from New York regulators.
The New York State Department of Financial Services (NYDFS) has granted the Gemini Trust Co. approval for its Articles of Organization. The NYDFS also granted Gemini an exemption from the FDIC deposit insurance requirements of New York's banking laws.
It's all been part of an arduous process to gain the solid regulatory backing needed to make Gemini the top choice for institutional investors.
The Winklevoss twins, Tyler and Cameron, set up the Gemini exchange as a trust company under New York regulations. It gives the Bitcoin exchange many of the same privileges as a bank, including the ability to take deposits.
But as a banking trust, Gemini can't lend money. Lending isn't necessary for Gemini to function as a Bitcoin exchange, and it would have lengthened the approval process even more.
The new approvals make the Gemini Trust Co. an "established entity," which means it can now pursue the formal relationships with banks and vendors that will allow it to actually launch the exchange.
The approvals have Gemini on the "one-yard line," Cameron Winklevoss told CoinDesk, although it still needs a few more approvals from the NYDFS.
The Winklevoss twins have pursued the banking charter path rather than apply to the NYDFS for a BitLicense specifically because they wanted to serve institutional investors.
"I don't know if anyone has made this distinction enough. If you want to service institutional customers in New York, the BitLicense is not sufficient," Cameron Winklevoss told CoinDesk. "There's a good chance that when you get one you'll have to curtail or stop actually servicing NY institutions."
The charter also means the Winklevoss Bitcoin exchange will have the option to offer derivatives, swaps, and futures, although that will require further approval from the Commodity Futures Trading Commission (CFTC). The CFTC ruled last month that Bitcoin is a commodity, and so such trading falls under its jurisdiction.
Gemini will not be the first U.S.-based Bitcoin exchange - Coinbase and ItBit went live earlier this year. ItBit, like Gemini, operates as a trust company with NYDFS approval.
But here's why institutional investors are likely to prefer the Gemini Bitcoin exchange...
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Part of the appeal of the Gemini Bitcoin exchange is the painstaking effort the Winklevoss twins have made to ensure it's fully compliant with all regulations. That goes a long way to building confidence in an institution - particularly a new one based on a digital currency that itself is only six years old.
But the Winklevoss twins also believe Gemini has features that will make it more appealing to institutional traders.
"We describe Gemini as an E-Trade, because we'll have a web interface, like Nasdaq, because we have a matching engine order book, and like DTC [Depository Trust Company] because we are also a clearing and settlement house. We are basically all three functions collapsed into one," Tyler Winklevoss told Modern Trader. "When we discuss what we're doing with the institutional crowd, they get really excited about the clearing and settlement aspects of what we're doing, and the reduction in costs. Bringing that friction down is a massive opportunity."
The Gemini Bitcoin exchange also fits into a larger trend of rapidly increasing Wall Street interest in the digital currency. Last month, for instance, nine major world banks announced they had formed a partnership to study ways to incorporate Bitcoin into the global financial markets, an alliance that since has grown to 22.
The Gemini exchange is just one Bitcoin investing initiative the Winklevoss twins have undertaken.
They also are awaiting U.S. Securities and Exchange Commission approval of the Winklevoss Bitcoin Trust, a Bitcoin exchange-traded fund (ETF) that will trade under the ticker Nasdaq: COIN. Approval of the Winklevoss Bitcoin ETF is expected before the end of the year.
The Winklevoss twins also created their own Bitcoin price index, the Winkdex, which uses a weighted formula based on trading at the top three Bitcoin exchanges.
But for now, they're very much focused on launching the Gemini Bitcoin exchange.
"Our days are focused on building what we consider a pure-play Bitcoin exchange," Tyler Winklevoss told Modern Trader. "We need to make sure it's an active, healthy market with the right participants, so that when people show up, there's liquidity, a full order book and everything works as expected and advertised. We're trying to do this one thing really right, in a way that the community hasn't seen yet."
Follow me on Twitter @DavidGZeiler.
BitLicense Update: Just two weeks ago the NYDFS issued its first BitLicense to Bitcoin wallet company Circle, for which 22 Bitcoin companies have applied. The BitLicense makes sense for some Bitcoin companies, but others left New York State rather than apply for one. Here's what this tells us about the unsettled nature of current Bitcoin regulation...
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