BitGo, the crypto custody provider, is teaming up with a trading firm to offer its institutional clients the ability to buy and sell crypto for the first time on its platform.
The new offering, announced Wednesday, allows clients to trade the crypto held in their BitGo custody account without having to move it onto an exchange. Genesis Trading, as part of the deal, will execute trades on behalf of BitGo for its clients. BitGo clients will not have to open Genesis accounts to use the service.
Genesis Trading CEO Michael Moro said in an interview with The Block that the new offering is novel inasmuch as it allows users to trade their crypto without having to move their coins from cold storage or offline, which he says is more secure.
"BitGo clients, traditionally, would have to put the coins onto exchange," Moro said.
"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."
Tracy Olsen, who heads up products at BitGo, said institutional clients' eyes light up when they hear about the new service. "They want to keep their funds in custody without having to send them out to exchange."
While exchanges like Coinbase and Bitfinex are better known names in the nascent crypto markets, most large traders opt to execute larger trades in over-the-counter, or OTC, markets. That's because the liquidity is deeper than it is on exchange, Moro said. Exchanges are also known for being more susceptible to hacks. JPMorgan estimates that one third of all exchange venues in crypto have been hacked.
The service could give firms like Coinbase and Gemini, which offering trading and custody to institutions, a run for their money, insiders say.
Still, it could also show that BitGo is eager to diversify its business model as fees for crypto custody continue to suppress, said Sam Jernigan, Co-CIO of Wakem Global Opportunities Fund, a macro hedge fund that trades digital assets. "Just since the summer of 2018, we've seen the cost of custody decline anywhere between 50 and 100 basis points," he said.
As such, custody is not as big of a money maker as it was at the beginning of the year, Jernigan added. "That's putting pressure on firms and is forcing them to move past the commodity of custody to value-add services and additional tie ups."
© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.