Stellar Lumens Cryptocurrency Approved for Trading in New York for the First Time
New York financial regulators have approved Stellar Lumens, a cryptocurrency created by the founder of rival blockchain company Ripple, to trade on the itBit exchange—the first time the state’s authorities have given Lumens the green light.
ItBit, a cryptocurrency trading platform designed for institutional investors that previously only offered Bitcoin trading, also received approval from New York’s Department of Financial Services Thursday to add Bitcoin Cash, Ethereum, and Litecoin to its exchange. The virtual currency company was also the first in the industry to be granted a banking law charter from NYDFS three years ago—an authorization similar to, but broader than, New York’s famed BitLicense, required for companies wishing to offer trading of, or hold on to, cryptocurrencies for customers in the state.
NYDFS simultaneously announced that it had awarded a BitLicense to Xapo, a Bitcoin storage company with an underground vault in the Swiss Alps—only the sixth BitLicense granted since the certification was invented three years ago.
The approval of Stellar Lumens—now the seventh or eighth most valuable cryptocurrency with a market capitalization of more than $4.3 billion—is significant, because it signals that regulators don’t view the virtual currency as a security (akin to a stock or bond), a dreaded designation which would require registration as a broker-dealer with the U.S. Securities and Exchange Commission.
“That’s why we’ve added them to the exchange,” Chad Cascarilla, co-founder and CEO of itBit’s parent company Paxos, told Fortune. “If they were a security, you’d have to go through a different process.”
The move potentially clears the way for more exchanges to list Lumens, a factor that could help boost the cryptocurrency’s price. Coinbase, the leading U.S. cryptocurrency exchange, which currently offers trading in Bitcoin, Bitcoin Cash, Ethereum and Litecoin, announced this week it would add Ethereum Classic to its offerings, sending the price of that digital currency soaring 20%.
Lumens were created by a company called Stellar, founded in 2014 by Jed McCaleb, who also started Ripple and the now-defunct Bitcoin exchange Mt. Gox. With funding from payments company Stripe, Stellar’s blockchain (or distributed ledger) technology is now used by companies from messaging startup Kik to IBM, which uses Lumens to send payments between countries in the South Pacific region.
The Stellar Lumens price rose more than 5% ahead of itBit’s news to about 24 cents, amid a bounce-back rally in the wider cryptocurrency market after a selloff earlier this week.
ItBit sought approval for the additional four cryptocurrencies because “these were the ones we heard from our customers they wanted the most,” Cascarilla said. It has not yet applied to trade any other virtual currencies, but plans to add more in the future, including possibly the cryptocurrency created by Ripple, XRP, he said.
“We clearly want to get to the top 10, top 20 assets over time,” Cascarilla added.
The announcement follows a $65 million Series B funding round Paxos, itBit’s parent company, closed earlier this month, bringing its total venture capital raised to $95 million. itBit claims to be the nation’s No. 2 player for U.S. dollar-Bitcoin trades, behind the leader Coinbase.
While other cryptocurrency exchanges licensed to operate in New York, including Coinbase and Circle, have sought to attract individual retail investors, itBit plans to stay in the higher-end institutional market, focusing mostly on hedge funds, private equity firms, and other Wall Street players, as well as wealthy individuals.
The company plans to expand its role as a custodian—a service to securely hold on to large sums of cryptocurrency assets for institutional clients—and also introduce new features, including collateral services, allowing customers to pledge their cryptocurrency holdings as a sort of guarantee when trading other risky assets, such as derivatives.
Cryptocurrency custodianship has been in demand recently from Wall Street investors looking for a way to enter the digital asset market that meets their strict compliance standards. Coinbase, for one, is rolling out its own such custody service for heavyweight investors.
That interest gives Cascarilla confidence, despite the plunge in cryptocurrency prices of late, with Bitcoin down nearly 70% from its December high.
“The interest and the adoption from institutions and large firms that have a lot of credibility is very real,” he said. “That might not be reflected in the price today, but from what I see, will certainly be changing the landscape over the next six to 12 months.”