Barry Silbert, founder and CEO of New York-based alternative investment marketplace SecondMarket, has confirmed he will be spinning off the entity’s bitcoin businesses into a separate organization dedicated to the exchange of digital currencies, and that this new business aims to be operational by this summer.
Silbert told CoinDesk that he will serve as CEO of the as-yet-unnamed entity, and that the new business will include Bitcoin Investment Trust, its private investment fund for high-wealth investors, and an 11-person trading desk that will support this offering.
The CEO suggests that SecondMarket will be contributing $20m in cash and bitcoin assets to the new endeavor, and that injections from other founding members could potentially increase this total by the time of its 2014 launch. He added:
“The company on day one will be well-capitalized, it will have two fast growing businesses.”
In addition to this big picture vision, Silbert also revealed detailed plans that suggest the process is in motion, and that the exchange has already cleared a number of potential hurdles on its path to market.
A new kind of exchange
The extensive plans represent a drastic shift in how bitcoins have been traditionally bought and sold through exchanges, with the company adopting a “hub-and-spoke” model that will find the exchange only interacting with formal members.
Non-members will not be allowed to facilitate transactions on the exchange, however. Silbert said he doesn’t see this as exclusionary, as such restrictions would inspire the creation of new businesses for the exchange.
“If you want to buy and sell bitcoin you have to go through one of the members, and the members are all going to be regulated businesses. They’ll be banks, they’ll be MSBs, they’ll be bitcoin companies, they’ll be broker dealers. The idea is the other exchanges of the world could actually become members of the exchange.”
The result, Silbert said, would be an environment similar to the New York Stock Exchange (NYSE), where individual customers go through brokers such as Fidelity or TD Ameritrade in order to complete transactions. The idea for the market itself is based on the IntercontinentalExchange (ICE) Group.
Founded in 1997, ICE is a 24-hour, Internet-based high capacity trading platforms focused on the global commodity and financial products marketplaces.
By providing a similar environment to existing structures, Silbert hopes money services business (MSBs) and banks will be more open to dealing with bitcoin and bitcoin-related investment services.
How the exchange will work
According to Silbert, the exchange will have three main functions.
Firstly, it will focus on price discovery. Using the gold market as a model, the exchange will attempt to fix the value of bitcoin once or twice a day to allow trading to be pegged at certain values and create a true indicator for the derivatives and mining markets.
“We’re going to attempt to slow things down a bit and create a true indication of bitcoin value, once or twice a day, and each of the members though they can trade all day long, or they can tie price to the spot price,” Silbert said.
The new business will also provide clearing services and have a self regulatory organization (SRO), which will ensure that all transactions properly clear with member firms and that exchange activities are governed according to input from regulators and major banks.
A shift in strategy
The news, while not entirely new to observers in the bitcoin industry, does indicate that Silbert has advanced his plans significantly since they were first released. Silbert had not previously suggested that the exchange would be a separate business entity from SecondMarket.
Silbert noted, though, that this change in strategy is not due to regulatory concerns, but is rather a “structural, branding initiative”, one that he saw as intrinsic given that SecondMarket’s core business, which extends beyond bitcoin, has its own customers and brand identity.
Silbert first revealed plans to move SecondMarket toward becoming a licensed, regulated bitcoin exchange on 7th February, when he announced it would begin allowing bitcoin users to sell bitcoins to Bitcoin Investment Trust, though no timeline was given for the proposed launch.
Stemming the Mt. Gox fallout
Silbert suggested that though he has been working on the plans for some time and has even collaborating with unnamed state regulators on the efforts, the apparent failure of Japan-based bitcoin exchange Mt. Gox inspired him to come forward with the news more urgently.
“We did accelerate the announcement with the intention to provide a counterbalance to the news so we could demonstrate to the press at least that there is an effort to fill the void of Gox,” Silbert said.
As for next step, Silbert suggested that with capital secure, the focus would be on finding founding members and formalizing the structure of the new entity’s SRO and clearing business.
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