BitGo, a crypto financial and custody services provider, has announced a partnership with a digital currency trading firm in a deal that allows BitGo’s institutional clients to buy and sell crypto assets directly from their accounts.
Announced on Wednesday, January 16, the new offering allows users the chance to trade the crypto assets held in custody accounts without the need for direct interaction with a crypto exchange.
BitGo is teaming up with Genesis Trading, an over-the-counter (OTC) crypto trading provider. Genesis will execute the cryptocurrency trades on behalf of custodial provider’s clients.
The company announced that BitGo clients would not be required to open accounts with Genesis Trading in order to use this service.
Commenting on the partnership, Genesis Trading CEO Michael Moro noted that the new service provides BitGo clients with a platform from which they can trade their crypto holdings without ever moving these assets from either cold storage or offline.
He added that in this way, clients get a more secure avenue to trade because traditionally, users would need to use an exchange to trade.
Speaking to The Block, Moro explained:
“Genesis provides the quote, BitGo turns around, and they can effectively segregate the coins and then send it to Genesis, and since we have a wallet at BitGo, they are never leaving their systems.”
The same sentiments were expressed by BitGo’s head of products Tracy Olsen who said that institutional clients are excited at the new offering because they feel safer with their funds held in custody.
Most people will be familiar with cryptocurrency exchanges and trading platforms like Coinbase and Bitfinex, which are popular in the in the burgeoning crypto markets.
However, to most of the large-scale and institutional traders, over-the-counter (OTC) markets provide the best platform to execute larger trades. The appeal comes from the fact that OTC desks provide access to liquidity that’s deeper than what one can find on an exchange.
Crypto exchanges are also prone to fall victim to hacks that have become so frequent within the nascent industry. A JPMorgan report has estimated that a third of all exchanges in the crypto market have fallen victim to hackers.
The latest hacking – the first in 2019 for exchanges – involved New Zealand-based Cryptopia that incurred ‘significant losses.’
BitGo’s new service is likely going to give fierce competition to leading crypto trading and institutional custody providers like Coinbase and Gemini which offering trading and custody to institutions.
Other than that, it could still be that BitGo is keen on diversifying its business model and stay profitable as fees accrued from crypto custody services continues to stifle.
That is the view espoused by Sam Jernigan, the Co-CIO of the macro hedge fund Wakem Global Opportunities Fund. He said that the cost of crypto custody has declined since mid-2018, with declines “anywhere between 50 and 100 basis points.”
He added that for that reason, custody services aren’t exactly as high earning as it was in early 2018.
As such, Jernigan notes, firms are under “pressure,” which is forcing many to look into value-add services and not just custody solutions.
Disclaimer: This is not investment advice. Cryptocurrencies are highly volatile assets and are very risky investments. Do your research and consult an investment professional before investing. Never invest more than you can afford to lose. Never borrow money to invest in cryptocurrencies.