Binary Financial has officially launched BTC-01, a bitcoin liquidity service that aims to target high net-worth investors who it believes are being turned away from the bitcoin market due to a lack of high-touch alternatives.
BTC-01 will open Binary Financial‘s established bitcoin trading services to the family offices, investment institutions and wealthy individuals who want to gain exposure to bitcoin and the broader asset class that is springing up around the technology.
Speaking to CoinDesk, Binary Financial managing partner Harry Yeh said that BTC-01 is the product of months of research as well as the trial and error that comes from operating an existing trading service in a rapidly evolving market. The digital asset investment specialist conducts proprietary cryptocurrency trading, hosts its own bitcoin mining operations and recently made an investment in mining manufacturer BitFury.
Yeh cited the trading flurry surrounding China’s tightening of financial controls around its domestic bitcoin industry last December as the inspiration for its new trading product. He said that Binary Financial was beseiged by calls from big investors at the time, but that due to the limitations on the technology underpinning its operations, it was unable to fully capitalize on the market.
He told CoinDesk:
“We’ve turned away probably $15m worth of business, or that was the potential business we could have had if we actually had a product like BTC.01.”
BTC-01 marks an evolution in Binary’s service, as the platform will use the enterprise security solutions offered by multisig bitcoin wallet specialist BitGo to better serve its clientele, whether they want to have total control of their funds, or allow Binary to operate as the custodian.
“BitGo is the only wallet that can support these types of use cases […] and allow Binary to manage their trades in the way a wealth manager would manage their stock portfolio,” CEO Will O’Brien told CoinDesk.
BTC-01 will initially serve clients in North American and China, though Yeh said Binary is evaluating other markets.
Tapping new technology
Many of Binary’s clients seek to put 5%–10% of their wealth into bitcoin with the same convenience they would when investing in traditional asset classes.
The solutions offered by BitGo, Yeh said, allow Binary to remove pain points for customers while allowing them better access to bitcoin markets.
“We’ve always had a service where we can manage the wallet for our clients, but it’s always been a pain. When they wanted to sell, we needed to wait for the coins to be able to sell them. Now, with a multisig solution they can call me up and say, ‘Hey Harry, I want to move this block, go ahead.’ We’ll have access to their wallet and that’s it. It’s less friction.”
With BitGo’s multisig service, Binary will create three keys for each account, extending one to the investor, while another is shared by Binary and the client. In turn, the third key is kept for disaster recovery. With the move, Binary joins BitFury and the Bitcoin Foundation as the latest digital currency company to enable BitGo’s platform.
O’Brien went on to cite the additional advantages his company’s technology can provide in terms of convenience and security, saying:
“[BTC-01] clients don’t have to go about trying to figure out how to set up a wallet, they don’t have to worry about bitcoin being held with pooled funds somewhere like a Mt Gox. [BTC-01] is about security and liquidity access combined.”
Wealth manager demand
Binary further framed BTC-01 as a necessary market offering for the many North American and Chinese wealth management firms that are seeking to serve high net-worth clients.
Yeh told CoinDesk that Binary’s research over the last year revealed that 25%–50% of wealth managers and investment banks in North America have clients asking about bitcoin, and 25% of these clients are ready to buy.
However, Yeh added, before BTC-01 wealth mangers and investment banks had been unable to capitalize on client interest due to the comparatively thin order books on major bitcoin exchanges, the relatively limited offerings at mass market bitcoin brokerages and regulatory uncertainty.
Though these companies could sign up for accounts at major exchanges, Yeh asserts that what they’re really looking for is a trusted partner that can navigate the complexities of what is, for their operations, a relatively niche offering.
“A lot of the wealth managers we deal with, their biggest frustration point is they just want to service their clients. They just want somebody who can be trusted they can send somebody to,” Yeh said.
Liquidity as a service
Even if wealth managers and investment banks seek to use services provided by exchanges, there are advantages to over-the-counter trading.
Yeh, for example, has long talked about the slippage that occurs on major bitcoin exchanges, whereby those who execute large bitcoin buy orders actually cause the price of bitcoin to rise, thereby increasing the cost of their investment as demand rises and individual bitcoins in the buy order increase in price.
Yeh notes that this market behavior can also occur on the selling side, and that one of the main value-adds for BTC-01 is the liquidity it will offer traders.
“Part of what the service provides,” Yeh explained, “is we have people that are almost always ready to take the other side of a trade, all across the world.”
A buyer’s market
Yeh also explained that Binary is launching BTC-01, in part, because the firm believes wealth managers are looking for this solution today, because bitcoin is trading at a low.
“We do have a larger number of wealth managers looking to diversify their portfolios, but they’ve been waiting for the price to go down, so this is one of those better buying opportunities,” Yeh said.
Yeh went on to voice his belief that services like BTC-01, which help onboard new, high net-worth investors to the bitcoin market, will also have a positive effect on the wider bitcoin market, saying:
“Even though we take most of our blocks over the counter, once we run out of over the counter, we have to go on exchanges to buy.
He added: “We think longer-term this is positive for the price of bitcoin.”