How BitGo Lost a Plum US Government Job to Custody Rival Anchorage

How BitGo Lost a Plum US Government Job to Custody Rival Anchorage

BitGo’s hard-won deal to custody cryptocurrency seized by the U.S. government was a victim of the company’s own success.

The $4.5 million, six-year contract with the U.S. Marshals Service, which CoinDesk revealed in April, fell through late last week. Instead, Anchorage, a stiff albeit smaller competitor, secured an even larger USMS contract – $6.6 million – that expires after just five years.

Turns out, BitGo got disqualified on a technicality. USMS spokeswoman Lynzey Donahue told CoinDesk the firm was simply too big to win a small-business contract, as this contract was earmarked for. So the Small Business Administration (SBA) nixed the original deal, she said.

The last-minute turnabout is the latest development in a custody saga stretching back to 2018, when the USMS first hinted it needed help storing criminal coins. A division of the sprawling U.S. Department of Justice, USMS is responsible for disposing of millions of dollars in crypto that its sister agencies have seized.

Fifteen companies pitched USMS beginning in June 2020, public records show. Some were excluded from consideration – the government says being too big for a small business contract is the most common reason – but BitGo and Anchorage both survived the cull. BitGo inked its win on April 21. CoinDesk broke the news the next day, and BitGo trumpeted the victory the day after that.

That win began to teeter within five days when at least one of the contract’s 14 losers cried foul to the SBA.

“BitGo was their first choice and it was protested by competitors,” BitGo CEO Mike Belshe told CoinDesk.

Who that protester was remains a mystery, but they kicked off a bureaucratic review that ultimately stripped BitGo of up to $4.5 million in government cash. Instead, runner-up Anchorage is set to emerge with that – and $2 million more.

“We are unable to comment on BitGo, but Anchorage participated in more than a year-long process, and in the end, we were chosen,” the company said in a statement. It declined to comment on what happened behind the scenes.

Lucre and glory

The hyper-competitive world of federal contracting is awash in cash, private sector suitors and more than a hint of prestige. Especially in crypto, an industry with a robust criminal underworld, getting to boast of a law enforcement partner that perhaps counteracts the shadow is itself a prize.

Some crypto firms avoid that megaphone. For example, Chainalysis, the largest of the crypto tracers, does not trumpet every million-dollar deal it inks with Washington’s alphabet soup of agencies. It has secured more than 100 federal contracts from IRS, FBI, ICE, DEA and others since 2015.

BitGo and Anchorage have each had only one record in the public databases: the same USMS custody deal. Both quickly turned their opposing victories into marketing plays.

“We see this as a validation” of BitGo’s service, one company exec crowed in the April press release. Three months later, Anchorage declared more or less the same.

Losing the $4.5 million will likely make little difference, financially speaking, for BitGo, which two weeks after declaring pre-emptive victory in April agreed to a $1.2 billion acquisition by Mike Novogratz’s crypto conglomerate, Galaxy Digital.

Galaxy’s certainly no small business, and few in the crypto world would consider pre-buyout BitGo or Anchorage, a BitLicense-holder, mom-and-pop shops either. But the SBA sets the line for small businesses in the “commodity contracts dealing” industry at those with less than $41.5 million in annual revenue.

SBA press officer Tiffani Clements told CoinDesk the agency checked a “snapshot” of BitGo’s financials from May and June 2020 and found the firm’s revenue was too high to fly. The result: BitGo was removed from small business contention.

“BitGo has the option of appealing our determination, so far they haven’t,” she said in an email.

If BitGo had appealed, then a trove of documents detailing its size, salaries and revenue could be made public, according to Shane McCall, a partner at the law firm Koprince McCall Pottroff, which specializes in challenging SBA rulings.

Belshe, who will become Galaxy’s deputy CEO and a board member once the merger closes, said he’s decided to just walk away from this.

“We’re busy with the business,” he said, “The last thing I need to do is continue,” this fight.

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