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.