Big investors who've soured on cryptocurrencies because of the industry's billion-dollar theft problem will soon have a new way to trade that's touted as a safer solution.
By the end of the month, BitGo Inc.'s customers will be able to buy or sell Bitcoin, Ether and other digital assets without the coins ever leaving cold storage — in other words, they'll stay on devices not connected to the internet, making them harder to steal.
BitGo is offering this through a partnership with Genesis Global Trading Inc., a trading firm.
Hacking is a major problem. Almost $1 billion worth of cryptocurrencies was stolen in the first nine months of last year, according to blockchain security firm CipherTrace.
Crypto prices have plunged over the past year, and the big, institutional clients BitGo wants to lure in could bring enough trading firepower to fuel a rebound.
BitGo wants to "introduce market structure to crypto that's never existed before," Chief Executive Officer Mike Belshe said in an interview. Being able to buy or sell in offline-mode means coins aren't sent to exchanges, cutting the risk of theft, human error or running afoul of compliance requirements, he added.
Genesis Trading will match BitGo customer's buy and sell orders, CEO Michael Moro said. Trading coins in cold storage could reduce another problem for investors: the risk that prices move against them during the day or two it currently takes to load the coins into an exchange's hot wallet so they can be traded.
"Hot wallets are online, so hackers can do whatever they do to get the coins," Moro said. Genesis will make money from the deal by keeping the difference in prices to buy and sell, what's known as the bid-offer spread, he said.
After seeing cryptocurrency prices soar to records in late 2017 and early 2018 — Bitcoin peaked near $20,000 and Ether traded over $1,300 — the market had a disastrous time last year, crashing by as much as 90 percent.
Besides security concerns, institutional investors may also be staying away from the asset class due to such extreme volatility, Belshe said. He noted that global market jitters are also likely affecting investment decisions as investors look for safe places to keep their cash.
Still, Belshe believes crypto is here to stay and while there are tens of billions of dollars in institutional money now in the space, that number "can easily go into trillions." To do that, more defined market structure that investors are accustomed to in traditional assets like stocks or futures needs to be built, he said.
For much of the cryptocurrency market, exchanges such as Coinbase or Gemini act as a trading venue, broker-dealer and custodian, an all-in-one approach that needs to change to lure more traditional money, Belshe said.
Genesis won't be the only way for BitGo customers to trade in cold storage, he said. "We will hook up as many liquidity sources as we can so our clients will have access to as much liquidity while staying in cold storage," Belshe said.
