Bitcoin Exchange ItBit Seeks New York Banking License

In a little noticed move, bitcoin exchange itBit has filed for a banking license in New York, according to the state banking authority.

Approval for the license may come in the next couple of weeks, people familiar with the matter told Reuters, which could make itBit the first bitcoin company to be regulated as a bank in the United States.

The application is part of itBit’s plan to expand its business into different corners of financial services, and present itself as a trustworthy and reputable company. Right now, itBit operates as an exchange where buyers and sellers trade the bitcoin digital currency.

After a series of scandals that have roiled the virtual currency markets, reassuring customers, investors and bitcoin market participants is critical. Last year, rival Mt. Gox filed for bankruptcy after its computer system was hacked, and prominent bitcoin advocates had been accused of money laundering.

“Some highly publicized failures and potentially illegal activity have focused attention on virtual currencies and have highlighted the need for a sound regulatory framework for virtual currencies,” itBit Chief Executive Charles “Chad” Cascarilla said in an October letter to New York’s state banking regulator on an unrelated matter.

ItBit, whose exchange operates in Singapore, moved its primary headquarters to New York last year, and hired Erik Wilgenhof Plante from eBay as chief compliance officer. The company’s website touts its anti-money laundering efforts and “know your customer” credentials, as well as its compliance in all jurisdictions in which it operates.

“Whether fairly or not, companies that work within the regulatory framework are more trusted by customers and partners,” said David Berger, CEO of the Digital Currency Council, an industry advocacy group.

The bank application for itBit Trust Company LLC lists three bigwigs in government and regulatory circles as “organizers,” including former Federal Deposit Insurance Corporation Chairman Sheila Bair, former Financial Accounting Standards Board director Robert Herz and former New Jersey Sen. Bill Bradley. Organizers are responsible for setting up limited liability companies in New York, but do not necessarily hold operating positions within them.

The application also names Cascarilla as an organizer, as well as his business partner Emil Woods, a former SAC Capital portfolio manager who co-founded the investment firm Cedar Hill Capital Partners with Cascarilla.

Benjamin Lawsky, New York’s superintendent of financial services, has been a vocal advocate of regulating virtual currencies like bitcoin as well as other businesses, like payments, that would operate using the same technology.

That technology, called blockchain, essentially records every transaction that happens on the system. Transferring cash requires changing an entry in the ledger, but does not require processing by a bank or other intermediary, making it potentially faster and cheaper.

Many on Wall Street and Main Street dismiss unregulated virtual currencies like bitcoin as a wacky concept embraced by paranoiacs, gamblers and bored teenagers. But large companies including IBM and Goldman Sachs are looking seriously at applying the technology behind bitcoin to businesses ranging from payments to trading.

Central banks like the U.S. Federal Reserve and the Bank of England have also examined blockchain, while major cities including Singapore, London and New York are positioning themselves as bitcoin hubs.

“Many people believe that the real payoff with the bitcoin phenomenon is blockchain and all the various uses it can be put to,” said Jeff Neuburger‎, a partner at the law firm Proskauer Rose who specializes in technology. “It will have some impact on the way all kinds of financial services are conducted.”

Spokespeople for itBit and New York’s department of financial services confirmed the company had filed a banking license application but declined further comment. Bair, Herz, Cascarilla and Woods did not respond to requests for comment. Bradley could not be reached for comment.

ItBit is backed by venture capitalists including Canaan Partners, RRE Ventures and Liberty City Ventures, where Cascarilla is a partner. Since its founding in 2012, the company has received $3.3 million in a round of fund-raising, according to the startup site CrunchBase.

Lately, itBit has been looking to gather more money from investors including Cedar Hill to fund new business ventures, one person briefed on the matter said.

(Reporting by Lauren Tara LaCapra; editing by Dan Wilchins and Diane Craft)

This article originally appeared on Recode.net.