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Coinlab Bringing Bitcoin to Wall Street with MtGox Deal

Photo: Wallstreet Charging Bull, CC BY 2.0 herval, Flickr

A venture capitalist backed Bitcoin company wants to make it safe for U.S. and Canadian investors to do large block trades of Bitcoins and keep them ultra-secure from loss. Coinlab has worked for a year to sign an exclusive long term deal with Bitcoin exchange Mt.Gox. The Silicon Valley-based company will take over exchange transactions for all U.S. and Canada clients meaning your money will get moved to a U.S. bank and Coinlab will now be the clearing pool for all peer-to-peer transaction on the Mt.Gox exchange. The safeguards they have set up is a move to drive more U.S. volume in Bitcoins along with paving a way for institutional investors and high net-worth individuals to buy and hold large amounts of the digital currency.

“80 percent of Mt.Gox traffic already comes from this area. We are essentially buying their book of traffic,” Peter Vessenes told Bitcoin Magazine in an interview.  The goal is to move customers’ money from overseas to Silicon Valley Bank by March 22nd. This should cut down on the fees, currently around $60, that clients pay Mt.Gox for international wire transfers to their U.S. bank.

Coinlab was the first Bitcoin company to get venture capital money, over $500,000, last year. They were known as providing games paid for with Bitcoins but this move into mass retail transaction service takes the firm into a whole new sphere.

Right now an average Mt.Gox customer pays .6% per transaction, volume over 10,000 pays only .3%. These tier two customers will now get live phone help via Coinlab experts. Vessenes says large transactions will still have to get reported to FinCEN as Coinlab wants to be observant of U.S. money laundering rules.  There could be a know-your-customer (KYC) process to opening an account but Coinlab is still working on protecting anonymity.

Vessenes told Bitcoin Magazine in previous interviews last year that whoever can figure out how to store Bitcoins – in 250,000 to 500,000 blocks – and make the client feel like they are safely in a bank vault will really help make the digital currency accessible to big money investors.

The process Coinlab came up with for safety feels like a James Bond transaction with private and public keys, and they’ve gone old school storing a Rubik’s cube set of private key data in hard safes. The private keys will be split into three parts with only two needed to unlock your transaction. They won’t be stored in a computer database but printed and placed in a vault. Who can open the vault will be divided up; meaning a red team vault opener won’t be able to open the blue team’s vault.

The folks at Coinlab are also working to get your data insured for loss. Lloyds of London does these kinds of transactions but Coinlab has yet to finalize an insurance agreement. Of course they’d likely have to make sure there is a plan to make sure that the vault openers don’t get kidnapped. If they can get storage insurance they’ve just jumped the fence into Main Street’s arms.

If you want to want to buy large amounts of bitcoins without using your own cash you’ll still have to find a lender to give you leverage though — Coinlab isn’t a bank – or regulated by any US or Canadian securities or banking regulators.  But there is a hint in their new deal that shows they are working to find a way to get liquidity to Forex broker dealers or private wealth managers to help high net-worth individuals invest long-term in bitcoins.

Vessenes told Bitcoin Magazine, “Our deal with Mt.Gox means we just picked a retail customer but I care very much about the needs of the institutional investors.”
Coinlab’s strategy page has a nifty live action chart of Bitcoin liquidity which will feature a buy and sell button. The company will also work on alerts to their customers about big price swings.

“Coinlab’s deal with Mt.Gox is great for Bitcoin liquidity in the US and Canada.  It’s nice to see more formalized channels emerging here for Bitcoin FX.  This is the start of many terrific things for Coinlab and the global FX market is $4 trillion but we still have a long way to go,” Joel Yarmon of Draper Associates, who invested in Coinlab, told Bitcoin Magazine.

Jay Walker, a forex prop trader, said he’d jump to any forex broker deal that would allow him to do currency pair trades and get paid out in bitcoins. This is something the Bitcoin exchanges could do by signing deals with forex broker deals – assuming they get through each country’s regulatory process. Walker also said he’d love the opportunity to short Bitcoins. Of course to short Bitcoins some smart entrepreneur would have to come up with a credit or Bitcoin borrow system to make that happen but it’s clear the players in this field are thinking about the market demand for it.

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  • ddevine

    This would be a great step in basically legitimising the use of Bitcoin and taking it from being regarded as a toy or conduit for nefarious trading to something used seriously by institutions.

    • Teri Buhl

      You’re right…that was take I got from institutional traders and investors I interviewed while working on the story. But also if they are buying more BTCs then more street level stores, bars, business will have to start to accept the currency because they want them to spend it.

  • Bugpowder

    “has worked for a year to sign an exclusive long term deal”…. “goal”…. This sounds like coinlab hasn’t actually done anything yet, they just are trying to make a deal and have, so far, failed.

    • Teri Buhl

      No they made a deal and it’s signed. Conversion starts next month.

  • timeshare africa

    I cannot see a big difference between hard storage of printed bitcoins on a sheet of paper and printed shares of a company printed on a piece of paper.

    • simonvrouwe

      I guess you’re right. One way to look at bitcoins is as shares (stocks) of a digital payment system (Bitcoin), of which the shares are the tokens. But I don’t know how it compares in the issuance of (new) shares, as with Bitcoins this is at a predictable rate and with shares (stocks) it is decided by the board and requires >50% shareholders consensus or so? Correct me if I am wrong.

    • Brian

      I disagree. Stocks and Bitcoins are intrinsically different and in few ways similar.

  • Ade

    Wall street storing people’s Bitcoins, is that really a good idea.

    • Teri Buhl

      Coinlab isn’t a Wall Street Company far from it. It’s a tech company out of northern california.This is encouraging high finance ppl to feel comfortable to buy bitcoins , like a $1mn worth, and hold them without fear of hacking. That means more liquidity in the market which should improve or hold BTCs value.

      • Ade

        I hope you’re right, I feel safer with a Brain Wallet.

        • qwertyuiop123456789

          Brain wallets are stupidly bad unless the phrase has never appeared anywhere on the internet in any language, or made up of random letters and numbers over 15 digits or is over 15 normal words long with mixed in punctuation. They are so easy to crack people will eventually start ‘mining’ for brain wallets like yours when the price and technology increases!

  • npcomplete

    I can’t be the only one feeling very uneasy about this. First, from Coinlab’s FAQ:

    If you are in the US/Canada, you can’t
    stick with Mt. Gox, though. Part of our agreement with Mt. Gox is super-strict about
    locale: Mt. Gox really wants to be 100% out of the US/Canada market.

    The question is, why? It feels a lot like the situation of foreign banks purging of US clients because of FACTA

    Second, they generate and have complete access to your keys. This is bad. Very bad. Even if they use cold storage paper wallets, they should not have access to your key. I don’t care if they split it between groups. Only the customer should be able to access those vaults. But it may not matter much because in this situation, known physical storage leaves you extremely vulnerable.

    Coupled with the forced move of US customers out of Mt.Gox, this just doesn’t sit right with me.

    • Tiago

      What do you mean? Can’t you just withdraw your coins to a Wallet you control?

      • bvdonjuan

        When you list your Bitcoins for a sell on any exchange, you must hand over control to the exchange so they can forward the sold BTC to the buyer – who also has to have their money in control of the exchange.
        The problem I see with these wealthy investors is that they will quickly snap up most of the existing 11 million BTC units and wait for the prices to go way up, then dump. One this seems certain – it will drive up the value of BTC as Bitcoins are no longer in the stream of retail. Supply vs demand. It will be a game to see who get stuck holding coins when the price races up and then plummets.

    • mushmanmush

      And what happens if government steps in and says they want to do a ‘wealth tax’ on your bitcoins and Coinlab gives up your info and access because they themselves don’t want to be strung up?

  • Alex

    It’s possible to short BTC/USD by selling futures contract at ICBIT exchange.

  • Hidden Media Meaning

    Great! Early adopters will be filthy rich! No, wait! Hang on… isn’t this exactly what Bitcoin was supposed to address. Now we only have inflation as a problem addressed. Speculation and debt are still problems. It’s no miracle cure

  • whoneedsthis

    Why would “we” need this nonsense?

    I really hope they won’t succeed with this plan,there’s no need for old mistakes implemented!

    if anyone can explain why I might be wrong on this then please do so.

  • Markus

    This represents another millstone in the evolution of Bitcoin, I hope in the right way and the community stays vigilant. I can imagine that an exponential growth in the bitcoin trade volume will make the price to skyrocket.

  • traderjoe

    jesus, bitcoins have jumped in value by more than double, if i had any i would have doubled my money.. time to buy or sell??

  • mushmanmush

    So how much is this ‘large transaction’ that gets flagged for money laundering? Bitcoin’s primary purpose is to create a currency that cannot be overtaken and controlled by government. Its my own business where my coins go and my own business of whether I pay taxes on them and report earnings to the IRS. Don’t know about you but I am going to slowly siphon off my coins from MtGox on to my own secure wallets.

  • Sean Bell

    I am all for Coinlab moving forward with plans on making the currency more mainstream. As a citizen of the US I will be looking for other ways to buy my bitcoins than through them. It is bad enough that they moved the databases and information within the borders, which they can easily be forced to give up, they picked probably the worst state they could have chosen. If they had offered me the option of switching to their service I might have been amenable on some occasions, being forced into something that I see has disaster written all over it galls me enough that I won’t use them come hell or high water.

  • Cobra

    Ive tried to use Mt.Gox and found it a bit confusing, i use coinbase to purchase btc and that is easy no hassle and so far pretty secure. I highly recommend them. It takes a few days to verify your account and then a few days after purchase for the btc to appear in your account. Its pretty smooth sailing. I went to use coinlab and saw how its basically asking someone to purchase and then they contact you where coinbase is pretty much automatic with no interaction with anyone other than if you have question.

  • Trevor Prime

    Does anyone know where I can find reliable data on the amount of people and websites using Bitcoins?

  • Kenneth Arp