California-based bitcoin security company Xapo has raised $20m as part of an initial round of fundraising led by Benchmark, Fortress Investment Group and Ribbit Capital.

The funding round is the second largest public round in the bitcoin space, trailing Coinbase’s $25m Series B completed in December, but coming in ahead of Circle’s $9m Series A round in October.

Founded by Wences Casares, former CEO and founder of digital wallet startup Lemon, the company maintains bitcoin cold storage facilities in two undisclosed locations.

Casares invoked his Argentinian background when talking about the company, noting his parents routinely lost money due to rapid inflation and deflation in his home country, and that as such, providing protection to clients against this risk is a matter he takes seriously.

Said Casares:

“I recognize that those are extremes but, when you grow up in that environment you become much more aware of problems with currency. So, when I saw bitcoin it was like a dream.”

The vaults claim to have enhanced security. For example, their servers were never online, meaning that no cybercriminals can fingerprint them as a means to steal information. Further, all the bitcoin in Xapo’s vaults are insured.

Fortress revealed in February that it bought $20m worth of bitcoins as part of its experimentation in the sector, while Ribbit Capital was founded by Bitcoin Foundation board member Micky Malka.

Service overview

Currently, Xapo holds bitcoin for large commercial customers such as hedge funds, family offices and wealth funds. Users pay 12 basis points a year for the service.

Benchmark partner Matt Cohler indicated that he believes the funding round is a natural step for the ecosystem, noting that he expects bitcoin users to eventually pick storage service providers the way they do banks.

Said Cohler:

“You’ll want to understand the company’s credibility, backing and solvency. In this case, you have a company led by one of the most important people in the bitcoin ecosystem, it’s insured and has investors from both Silicon Valley and Wall Street.”

2014 in startup funding

The Xapo funding is by far the largest round yet registered this year, in what has been a slow few months for funding. To date, the largest rounds in 2014 have been for Asian companies such as Singapore-based ATM manufacturer Tembusu and South Korean bitcoin exchange Korbit, both of which raised under $500,000.

However, if earlier predictions hold true it may not be one of the largest for long, as venture capital firms are still bullish on bitcoin‘s prospects across all sectors of the industry.

Image credit: Vault via Shutterstock