Bakkt Buys Custodian, Signs BNY Mellon Amid Quest For Legitimacy

The takeover should help Bakkt secure the NY regulator’s approval to operate as a so-called ‘qualified custodian.’

The COO of cryptocurrency platform Bakkt, Adam White, today shared a series of exciting announcements on his official Medium blog as the company expects to win approval soon to serve clients requiring a custodian that meets stringent US standards for guarding crypto assets.

Firstly, the former Coinbase executive announced the acquisition of Digital Asset Custody Company (DACC), which provides cryptocurrency custody solution for institutional investors and token issuers holding digital assets.

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The takeover should help Bakkt secure the NY regulator’s approval to operate as a so-called ‘qualified custodian.’  The qualified custodian designation, which firms like Coinbase, Gemini and Paxos also have, helps Bakkt lure more-established firms to its pending trading venue.

DACC already provides custody solutions for more than 100 cryptocurrencies and serves institutions like hedge funds, private equity firms, family offices, and sovereign wealth funds.

Bakkt’s move follows similar acquisitions by US cryptocurrency operators, including Coinbase which said earlier last year that it’s buying a broker-dealer to offer customers blockchain-based securities. The acquisitions put these companies on a firmer regulatory footing with the US regulators and position them to offer a broader range of crypto-based financial products.

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Secondly, Bakkt also announced it has partnered with BNY Mellon to offer “geographically-distributed storage of private keys secured by the bank.”

In essence, BNY Mellon’s traditional role as a custodian of assets could enable Bakkt to meet federal regulations that require brokers, exchanges, and others to store investors’ assets with institutions like Bank of New York.

Consequently, BNY and Bakkt are trying to set up a crypto-custody service, under which the Wall Street bank’s history of safeguarding the assets of institutional clients could be leveraged to store Bakkt’s digital assets.

The news comes as a number of other cryptocurrency startups gain regulatory approval to offer custody services, including BitGo, Northern Trust and Prime Trust, among others.

Bakkt’s wallet product purportedly utilizes a range of security measures, including “on-chain and off-chain security measures to safeguard cryptographic keys,” “both warm and cold wallet architecture to secure customer funds” and “layers of automated controls including multi-factor authentication, destination address whitelisting, and role-based permissions.”

Finally, Bakkt confirmed previous reports that it applies for the BitLicense from the New York state regulator as CFTC concerns over its physical Bitcoin custody services is causing it to delay time and again.

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