Crypto Custodian BitGo Joins Race to Provide Prime Brokerage Services

Crypto custodian BitGo is moving into the prime brokerage space, announcing a fully integrated suite of services Wednesday to serve institutional traders.

The services will be offered by BitGo Prime, a new entity that will be headed by Nick Carmi, BitGo’s head of financial services. Carmi joined the firm last year after stints at various banks and other financial institutions.

BitGo Prime has already launched crypto lending services, and plans to expand these as well as build liquidity on its platform this year.

BitGo CEO Mike Belshe told CoinDesk said building a prime brokerage in the crypto space is a difficult undertaking, at least in part because the overall infrastructure is still relatively young. In his view, a true prime brokerage begins with regulated custody, followed by lending and borrowing services.

He said the company’s recent acquisition of tax management provider Lumina might have been “the biggest part” of its prime brokerage announcement.

“They had already had some elements of trade but it fits in well with the portfolio views that we’re doing,” he said. “We’re trying to shift the overall product focus from like ‘here’s our wallets,’ … [to] more about like ‘what’s your overall portfolio?’”

BitGo Prime offers trading on a fully non-disclosed basis, he said, meaning that while BitGo knows who its clients are through its know-your-customer/anti-money laundering measures, the outside world is not privy to which companies are conducting a given trade.

Carmi said the services are targeted to institutional investors already familiar with the prime brokerage model.

“You can trade right now out of your cold storage,” Carmi said. “Operational security is there, operation controls are there, it’s an insured wallet, right, to be protected and nobody knows whether it’s you buying or you selling because all they see in the market is BitGo buying.”

Bridging finance

The company has been building out the brokerage for a few years, Carmi told CoinDesk. The current phase of BitGo Prime’s rollout enables trading, and the new entity is looking to aggregate pricing from “multiple reputable counterparties, market makers and exchanges.”

While Carmi said these market makers are “big names,” he said he wasn’t currently able to name them publicly.

Belshe said the company’s next task would be attracting more financially conservative clients. This should happen as the company builds out its infrastructure and regulations around the space improve.

“I think traditionally we’ve had the problem of you’ve got this separation of crypto on this side and you know traditional assets on this side and never too shall meet,” he said. “I think we are starting to see some good signs that there’s going to be crossover.” 

Interest from the traditional asset side has been picking up, Belshe said. Investor Paul Tudor Jones’ recent announcement that he was hedging using bitcoin was “huge for the industry.”

“I guarantee you that every hedge fund manager if they weren’t already allocated some way in crypto they’re looking at it now,” he said. 

JP Morgan banking exchanges Gemini and Coinbase are another positive sign for the industry, and BitGo itself has heard from investment banks recently, he said (Belshe said he could not name the banks).

BitGo isn’t the only company sensing this interest: Genesis Trading (a subsidiary of CoinDesk parent company DCG), Bequant and Coinbase all recently announced their own intentions to offer prime brokerage services. In the cases of Genesis and Coinbase, the moves come as results of the acquisitions of crypto custodian Vo1t and Tagomi, respectively.

And while Belshe cautioned that “it’s going to take a long time” to bring conservative clients into the space, current events are raising interest in bitcoin as a hedge, he said, referencing the economic fallout from the COVID-19 pandemic.

“We’re in a place of massive uncertainty,” he said. “35 million, maybe 40 million unemployed here in the U.S., we don’t know how long this is going to go on and I don’t we’ve been printing at the federal level across the globe at [these] levels, we’ve just literally never ever seen before.”