(Bloomberg) -- Goldman Sachs Group Inc. and a venture founded by one of its former partners, billionaire Mike Novogratz, are investing in cryptocurrency custodian BitGo Holdings Inc., as the bank’s deep-pocketed clients keep asking about secure ways to hold those assets.

Combined, Goldman Sachs and Novogratz’s Galaxy Digital Ventures contributed about $15 million to BitGo’s Series B fundraising, which brought in a total of $58.5 million, the startup said Thursday. The endorsement from two firms with strong Wall Street roots may help BitGo attract more institutions and wealthy investors as customers.

U.S. regulators require large money managers to entrust client assets to a so-called qualified custodian -- often industry pillars such as State Street Corp. and Bank of New York Mellon Corp. But the initial unwillingness of those behemoths to hold digital currencies, which are notoriously vulnerable to hackers, has kept many major investors out of the market. That’s given startups such as BitGo a chance to pursue their business.

“If you were investing in any other asset class, you’re probably not worried about the asset just disappearing -- but this one, people still have that fear,” Mike Belshe, BitGo’s co-founder and chief executive officer, said in an interview. For cryptocurrencies to reach their full potential, “we’ve got to conquer that.”

The Palo Alto-based company, founded in 2013, offers digital wallets that require multiple signatures for transactions, as well as offline vaults for storing Bitcoin and rival currencies. In January, it agreed to acquire custodian Kingdom Trust. But after the deal fell apart, BitGo said it would build out its own qualified custody business.

BitGo has gathered a total of about $70 million in fundraising rounds. The company says it provides services for more than 75 coins and tokens, and that it holds more than $2 billion in assets.

Bitcoin Trading

Goldman’s investment could help the bank develop crypto services of its own. The securities firm was among the first on Wall Street to clear Bitcoin futures introduced late last year. And earlier this year, it named a head of digital-asset markets as it explored ways to help clients interested in investing in crypto.

In August, people with knowledge of the matter said Goldman Sachs was considering a plan to offer custody for crypto funds. But it had yet to set up a full-fledged desk to trade the currencies.

“We believe that a custody offering is a logical precursor to digital asset market making,” Goldman spokesman Michael DuVally said. The bank made the BitGo investment through its principal strategic investments group, where executives include Rana Yared, a managing director involved in developing Goldman’s crypto plans.

Digital currency enthusiasts have been hoping that institutional-grade storage will lure more investors into the market. But significant roadblocks remain.

Regulatory uncertainty is one, as traditional firms wait for financial watchdogs to clarify rules. And many investors may just be turned off by this year’s rout in crypto prices. Bitcoin has lost 65 percent of its value since peaking at almost $20,000 in late December.

--With assistance from Sridhar Natarajan.

To contact the reporter on this story: Lily Katz in New York at lkatz31@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, ;Michael J. Moore at mmoore55@bloomberg.net, David Scheer, Dan Reichl

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