This morning, US-based Coinsetter launched their much-anticipated bitcoin trading platform. The company was one of the first in the space to raise venture capital, closing a $500K round in April co-led by Barry Silbert’s Bitcoin Opportunity Fund and Tribeca Venture Partners. As an exchange looking to serve both US and international clients, Coinsetter is taking a unique approach to navigating the regulatory landscape and offering deep liquidity for its customers.
The company was founded by Jaron Lukasiewicz, previously an Associate at The CapStreet Group, a private equity firm in Houston, Texas. Coinsetter was initially focused on offering margin trading and the ability to short the currency, as both such financial services were notably missing or underdeveloped in the bitcoin space. With the dramatic changes in the bitcoin ecosystem over the past six months including dramatic price climbs, an evolving regulatory landscape, and a developing ecosystem, Coinsetter refocused its efforts on offering customers a US-based exchange with minimal latency and reliable banking behind the scenes.
As a New York bitcoin exchange looking to serve US clientele, Coinsetter faces a complex regulatory environment. To date, the company has obtained a compliance-approved banking relationship with a US bank – a feat few bitcoin exchanges have been able to achieve – and is in the process of obtaining state money transmission licenses, which it hopes to complete over the next year.
In the interim, Coinsetter is taking a unique approach to facilitating trading on their exchange. Rather than directly trading bitcoin and fiat, customers use their account balance to trade in a derivative product that reflects the price of bitcoin. According to Lukasiewicz, the company’s view is that Coinsetter provides a unique product that traders will find to be beneficial in many circumstances, including hedging of long term bitcoin positions, that aren’t possible when trading the bitcoin currency directly.
Coinsetter is launching with bitcoin deposits and withdrawals for US customers as they finalize a strategy with their legal team and US banking partner that will enable ACH deposits over the coming weeks. International customers will be able to deposit and withdraw in bitcoin or government fiat, with no fees charged for SEPA transfers through the month of November.
Regulators have addressed the notion of bitcoin derivative regulation in the past, but formal guidance on the matter has been less than clear. In the US, currency and commodity derivative products would generally fall under the purview of the Commodities Futures Trading Commission (CFTC). According to CFTC Commissioner Bart Chilton when he spoke to Bloomberg about bitcoin earlier this year, “It’s the derivative on the currency which would fall squarely in our bailiwick.”
Regardless of which regulator’s bailiwick trading at Coinsetter falls into, the company is committed to rigorous anti-money laundering policies. In addition to customer screening, the company has registered as a money service business with FinCEN in the US and is set up to file the appropriate reports with them as needed.
Coinsetter has taken a unique approach to offering liquidity to its customers by building a single platform that enables clients to trade not only Coinsetter’s books, but eventually those of other exchanges as well. For a limited time during their launch, the company will offer solely Coinsetter’s books with a growing amount of professional liquidity from market making arrangements.
Coinsetter expects to offer Bitstamp’s order book alongside its internal book, which over the coming weeks will provide customers with access to both exchanges through a single platform. According to Lukasiewicz, the two exchanges have a strong relationship, with Bitstamp having built additional features to enable Coinsetter to more effectively offer reliable quotes and accounting. Coinsetter plans to add at least one more exchange to their consolidated book in the first half of 2014, as well as additional bank deposit methods, margin trading, enhanced order routing, futures, short positions and interest-bearing accounts in the longer-term.
The exchange will feature a maker-taker model, where high-volume liquidity providers are rebated 0.10% for adding limit orders to Coinsetter’s book, while orders that pull liquidity off the books pay fees starting at 0.50% and declining to 0.20% with higher volume. For a limited time at launch and through the remainder of November, the company has announced that all trading on Coinsetter will be free of charge.