By Gavin Smith
CEO, First Global Credit
The recent hack of BitStamp and subsequent suspension of trading has left many holders of Bitcoin unable to liquidate their assets which are tied up in the suspended exchange. This is more than a mild inconvenience especially if the price falls rapidly; as it has in the last few days.
Many of our clients wanted to temporarily move some of their assets out of Bitcoin into Fiat currency to reduce their risk but were unsure where they could do this securely. Our clients have indicated that their faith in Bitcoins is not flagging, but they do want a safe haven to weather this storm so are moving their BTC into Fiat currency with a view to then reverse the transaction after the plunge has abated. This process of switching in and out of fiat currencies can be both expensive and potentially risky.
To meet this customer demand First Global Credit is bringing forward the launch of our Collateral Currency Switch Service which will become available shortly for all customers using our Bitcoin as Margin Stock Trading Service. The Collateral Currency Switch Service will allow customers to immediately switch any BTC held in their First Global Credit Account into one of 5 fiat currencies, USD, GBP, CHF, AUD, or JPY with a few mouse clicks. The account funds can still be used as collateral to finance stock investments while these switches are made and positions do not need to be closed to perform the transfer. When confidence is restored in the bitcoin market they can simply switch their assets back into Bitcoins at the then prevailing rate.
“By offering this service” states Marcie Terman, Communications Director at First Global Credit, “we are able to support our customer’s needs and reduce risk at the same time. Our hedging approach spreads risk not just across markets but also across multiple brokers and exchanges. By splitting transactions we are able to keep counterparty exposure to a minimum. This reduces the risk both in terms of duration (length of time funds are held with a counterparty) and extent (no counterparty exposure exceeds our available in-house capital.) This allows us to take on the counterparty risk on behalf of our customers on the transaction.”
In sharp contrast to Bitstamp, our security policy follows a more conventional model in terms of authorisation. All funds are held offline in multi-sig wallets and the withdrawal process is initiated by the customer using two factor authentication. The withdrawal request must then be digitally signed by a senior member of our operations staff and finally a member of the risk team. While this does slow down the withdrawal process slightly, this inconvenience is outweighed by the increase in asset security.”
The Currency Collateral Switch Service will be available to all First Global Credit customers from 1st February 2015.