The trust company charter, granted by the New York State Department of Financial Services (NYSDFS) gives the exchange a status similar to a that of a bank. It also means that ItBit can start serving customers across the country.
"This is a big deal, not just for us, but for the entire Bitcoin industry," said itBit's chief executive Chris Cascarella.
— Ben Lawsky (@BenLawsky) May 7, 2015
NYSDFS Chairman Benjamin M. Lawsky had been trying for more than a year to formulate new rules for virtual currency. He's proposed a new BitLicense to try to deal with the special nature of virtual currencies and the security concerns they raise.
Bitcoin companies have often run into difficulties opening accounts with banks who viewed them as risky or unstable. Establishing itself as bank-like entity itself obviates the need for itBit to rely on other banking institutions.
"The technology behind bitcoin and other virtual currencies could ultimately hold real promise, and it is critical that we set up appropriate rules of the road to help safeguard customer funds," Lawsky said in a statement.
"Indeed, we believe that regulation will ultimately be important to the long-term health and development of the virtual currency industry."
— Jim Harper (@Jim_Harper) May 7, 2015
There have been Bitcoin exchanges in the past — unregulated ones — and some high profile collapses which cost millions of dollars' worth of bitcoins did damage to the currency's reputation.
Ripple Labs, a virtual currency company, was fined $700,000 by the Treasury Department on Wednesday for violating regulations to prevent money-laundering. The penalty marked the Department’s first action against a virtual currency exchange.
The NYDFS said in a statement that they had reviewed ItBit's anti-money laundering, consumer protection and cybersecurity standards before making its decision to grant the charter. ItBit has also said it will provide FDIC insurance and full asset protection.
ItBit, which has offices in New York as well as Singapore where it was founded in 2012, is also the first such trust company created in New York since the financial crisis.
Thursday was a big day for the fledgling exchange, with more good news in the form of $25 million in new financing. itBit also announced three prominent new board members: Sheila C. Bair, the former chairwoman of the Federal Deposit Insurance Corporation; former New Jersey senator Bill Bradley; and Robert H. Herz, a director at Morgan Stanley.
"Our mission at itBit has always been to create a trusted, institutional-grade exchange and regulatory compliance is an important pillar of that mission," Cascarella said in a statement.
He added that ItBit's new status means that "our clients can rest assured knowing that their deposits are secure no matter the exigency."