Onramp Launches First Spot Bitcoin Trust with Multi-Party Custody

Bitcoin financial services firm Onramp has launched a spot bitcoin (BTC) trust for high-net-worth investors, which takes advantage of the cryptocurrency’s multi-signature (multisig) capability to enable what Onramp calls multi-party escrow – where a group of separate custodians each hold a private key in a multisig- arrangement.

Onramp has recruited qualified custodian Kingdom Trust and bitcoin financial services firm Unchained Capital to create a 2-of-3 multisig model, meaning two of these three entities must sign a transaction to move client funds. The goal is to give customers direct exposure to bitcoin without the hassle of self-custody or the risk of relying on a single custodian.

Each unit in the trust will be equivalent to one BTC, and clients will be able to process benefits in kind, redeeming the underlying asset (bitcoin) without triggering a taxable event.

Bitcoin exchange-traded funds (ETFs) in the US are currently not allowed to hold bitcoin directly and usually hold bitcoin futures contracts instead. Other investment trusts such as the $18.7 billion Grayscale bitcoin trust (GBTC) – the world’s largest bitcoin investment trust – hold BTC but do not allow redemptions.

Grayscale ceased redemptions in 2014, citing compliance with Securities and Exchange Commission regulations, although some, including Onramp and hedge funds such as Fir Tree Capital Management, argue that Grayscale’s halt in redemptions was self-imposed.

“GBTC did redemptions,” Michael Tanguma, CEO and co-founder of Onramp told CoinDesk. “They stopped doing them back in 2014/2015 when they wanted to accumulate AUM [assets under management].”

The inability to redeem has been a source of discontent for institutional investors such as Fir Tree, which has sued GBTC over the matter. Tanguma says Onramp’s in-kind redemptions (which can be processed after an initial 12-month lock-up period) and multi-party custody arrangement differentiate it from Grayscale and offer a new model for bitcoin custody.

“It’s essentially the product GBTC should have been,” Michael Tanguma, CEO and co-founder of Onramp told CoinDesk. “And I think that will be the future of how bitcoin is custodial.”

When asked if Onramp would need SEC approval to start the redemptions and, if so, why the regulator would approve the plan, Tanguma replied: “It doesn’t require formal approval because bitcoin is a commodity according to the CFTC, not a security. With that, Onramp plans to work with securities attorneys to get opinion letters in place to reduce the 12-month lock-in period for redemptions, and will work with all regulators to ensure Onramp remains compliant in all jurisdictions where it offers its services.”