SVK CRYPTO IN ASSOCIATION WITH ELASTOS
Metropolitan Bank Is Handling Millions for Crypto Clients (And It Wants More)
To most banks in the U.S., cryptocurrency businesses are pariahs. To Metropolitan Commercial Bank, they’re “pioneers.”
At least, that’s how the New York financial institution’s chief technology officer, Nick Rosenberg, describes them.
“We’re certainly very interested in growing this vertical,” Rosenberg told CoinDesk of the bank’s crypto clientele. “We’ve learned that it’s a serious industry. There are some very smart people involved. There are some very interesting ideas coming out that could really change the way people do business.”
While most banks cling to the adage “blockchain not bitcoin,” Metropolitan stands out simply by being one of the very few to enthusiastically court deposit business from crypto firms.
These clients include a few exchanges, as well as hedge funds and other crypto investors that bank at Metropolitan because it’s easier to quickly move their money to those exchanges. (To be clear: the bank only handles fiat for customers and does not touch crypto itself.)
So far, it’s proven a lucrative niche for Metropolitan. In the first quarter, cash management and foreign exchange conversion fees from cryptocurrency clients totaled $3.4 million, the bank disclosed in an investor presentation. This helped drive a more than 300 percent increase from a year earlier in Metropolitan’s total non-interest income, to $5.4 million, according to a Securities and Exchange Commission filing.
If that doesn’t sound like a lot of money, keep in mind that Metropolitan is a community bank. With just $1.9 billion in total assets, it’s less than one-1,000th the size of JPMorgan.
What’s more, that triple-digit rate of growth is astronomical for the U.S. banking industry, where non-interest income for all institutions climbed a measly 7.9 percent during the same period, according to data from the Federal Deposit Insurance Corp.
Yet despite the lucrative demand from crypto companies for banks to provide fiat liquidity and other traditional services, bitcoin-friendly banks like Metropolitan are still as rare as they were three years ago.
“It’s extremely challenging,” said Joe Ciccolo, president of the compliance service provider BitAML Inc. Referring to another sector that banks have famously shunned, he added:
“The legalized cannabis industry are having a much easier time than our cryptocurrency clients.”
One reason Metropolitan Bank is an outlier in embracing the crypto industry is that most banks can’t stomach the risks. Chief among them is the regulatory risk.
Anti-money-laundering regulations require banks to identify their customers and even their customers’ customers, plus track the flow of funds. While public blockchains can help banks and law enforcement trace the movement of money, the pseudonymous nature of crypto addresses makes it hard to determine who is ultimately sending and receiving funds.
Bitcoin’s historical association with underground drug markets certainly doesn’t help.
“It’s very difficult for a bank to maintain a pro-bitcoin stance,” said Ciccolo, citing the high turnover among compliance officers. “If you have a new officer come into a financial institution, they may take the opportunity to put a different stance on high-risk customers such as crypto companies.”
As bullish as they may be, Metropolitan’s bankers still recognize the risks of working with crypto clients. “It’s a high-touch relationship,” Rosenberg said, meaning one requiring extra diligence.
With regard to risk management, Rosenberg said there are two crucial keys to serving crypto clients.
The first is being extremely selective about client acquisition, only working with companies that take compliance as seriously as the bank does. The second is maintaining an open dialogue with regulators.
“Law enforcement departments, in general, are understanding that cryptocurrency is not all about illicit payments, it has a value and it has a legitimate purpose,” Rosenberg said. “It’s just a matter of spending time explaining it, understanding what their concerns are, making them feel comfortable that we are mitigating those concerns, and that we have the right controls in place.”
Compliance aside, Metropolitan also has to insulate itself from the volatility its cryptocurrency customers live with every day. As noted above, the bank only works with fiat currency like dollars, never touching cryptocurrency directly.
But more subtly, it’s minimized the risk to its own balance sheet in the event crypto depositors’ balances suddenly shrink. To illustrate why this would be a concern, the settlement accounts it maintains for exchanges totaled $281.2 million on March 31, representing 17.4 percent of the bank’s total deposits, according to the SEC filing.
Such a high concentration might normally be worrisome.
However, Metropolitan isn’t using these accounts to fund long-term assets like mortgages, just cash and equivalents. So, even if they were drained at once, it’s far from a run on the bank.
“They do not utilize a lot of these deposits in their everyday operations, just because they do know there is significant volatility there,” said Collyn Gilbert, an analyst and managing director at the investment banking firm Keefe, Bruyette & Woods.
To be sure, Metropolitan held another $100.8 million in corporate accounts for cryptocurrency firms, making up 6.2 percent of total deposits as of March 31. And these accounts do fund assets on the balance sheet.
But corporate accounts, which clients use for normal business activities like payroll, are less volatile than settlement accounts, which hold money only temporarily until a transaction is completed, Gilbert said.
Yet there’s one more risk Metropolitan has encountered in the crypto space: what finance types call “headline risk.”
In January, the bank sent its customers a reminder of what it said was a longstanding policy of not accepting crypto-related wire transfers from entities outside the U.S. Word leaked out to the press, which reported this was a new policy prompted by fraud. Metropolitan had to issue a public denial of that claim to quell backlash.
Setting aside the fee income and interest-free funding on deposits, there’s a more intangible benefit Metropolitan gains from banking cryptocurrency firms, one that arguably compensates for all the risks.
Namely, it gets a front-row seat to the revolution and is learning about how cryptocurrencies perform in the wild.
“I think Metropolitan was intrigued by the structure, more than just bitcoin, but the structure of that currency market in general,” Gilbert said. “The technology behind it is what has really been intriguing to this management team.”
Ciccolo agreed that serving this sector has given Metropolitan a competitive advantage.
“There’s a dual benefit for those banks that are willing to step out there,” he said. “Not only does it present a new book of business their competitors don’t have, so they can grow their customer base and reach, at the same time, it also gives them a sneak peek at some of the technology that might be impacting their world in traditional finance.”
Indeed, the bank’s director of new products, Kyle Hingher, said Metropolitan hopes to someday be one of the leading banks serving the emerging token economy, once the opaque regulatory landscape clears up.
“We’re looking at this market as a new asset class,” Hingher said. “We’d like to do more for the new asset class.”
For now, of course, even companies with cypherpunk ideals benefit from working with traditional banks to tap into audiences and services that utilize fiat currencies. Liquidity lends any crypto startup greater usability.
“If something is really going to succeed, it’s going to require a banking partnership,” Hingher said.
Looking ahead, the Metropolitan banker is keeping close tabs on the emergence of security tokens and blockchain-based settlement systems.
“The opportunity is to merge technologies and that potential for something brand new that could be earth-shattering and change everything. The potential for that, I think, outweighs all the crash-and-burn scenarios,” Hingher told CoinDesk, concluding:
“We call ourselves the entrepreneurial bank. We want to work with this new space rather than butting heads.”
Image via Metropolitan Commercial Bank
Written by CoinDesk.com
EOS May Be Live But It’s Still Got Crypto Critics Debating
After a messy weeks-long process, CoinDesk broke the news yesterday that the EOS blockchain is officially live.
To some, it’s already an event for the cryptocurrency history books.
When we talk about EOS, think about a cloud computing service like Amazon Web Service. It’s a platform for the storing or hosting of data, except rather than using a centralized server, EOS is attempting to distribute the data in a distributed system using blockchain technology.
It was created by blockchain startup, Block.one, and was able to gather over $4 billion to develop its open-source software over a year-long initial coin offering (ICO).
Last week, however, Block.one turned its code over to the world, or more specifically, to developers willing to work on the software as well as 21 block producers who will approve its transactions. The idea is that, in order to be more efficient than your average blockchain, EOS reduces the number of individuals or companies that can validate transactions.
Rather than competing in a global open market like bitcoin’s, users who own tokens are constantly voting for block producers.
Sounds pretty ideal right? Well, the trick is getting a global network no one is supposed to control off the ground.
Some questioned the set-up, as it ensured the voting process went on for some time while all the distributed users of the network struggled to coordinate. In this way, the more damaging criticisms might come from those who were eager to point out this has been done before (with varying results).
Some even went so far as to blame the plan of action for the token’s poor market performance over the last few weeks.
These comments point to a central issue – EOS operates differently than other blockchains.
This means it’s still taking the industry a while to see what EOS is trying to create and that this vision actually adds value to the users it wants to reach.
As long-time industry observers point out, it’s still not really clear who would want a blockchain that’s not that decentralized. After all, blockchain believers cite decentralization as a key advantage of blockchains over the existing financial system.
Some even go so far as to argue past investments are influencing current opinions on the project.
But with EOS is ranked as the number five cryptocurrency on CoinMarketCap, there are those who remain eager to defend its vision.
As the tweet below shows, crypto Twitter might be divided on this view for some time to come.
EOS money image via Shutterstock
Written by CoinDesk.com
An Inside Look at the Electron Cash Wallet Coming to iOS
Electron Cash Is Coming to iOS
The Electron Cash wallet is a reputable bitcoin cash (BCH) wallet that’s been around for quite some time. At the moment the client is available for Mac, Linux, Windows, and Android for mobile phones. However, the wallet’s development team and lead developer Jonald Fyookball are in the midst of building the Electron Cash application for iOS users. Fyookball has allowed news.Bitcoin.com access to the beta testing using Apple’s Testflight system so we could experiment with the wallet, and share our experience with our readers.
Experimenting With Beta Version 3.2.0 on Testflight
When opening the wallet users are greeted by a neon-blue like screen that says Electron Cash, from here the user can choose a few options when they launch the app for the first time. The choices given are the usual create new wallet, import an existing seed, or use existing public or private keys. We created a new wallet and the Electron Cash iOS interface gave us a new twelve-word mnemonic phrase to write down. After finishing writing the seed down, the wallet asks you to re-type all twelve words, but it doesn’t take too long because words are predicted and easily-tappable after a few letters are typed. You also encrypt the wallet with a password, and are given the option to name it as well. Remember your password and mnemonic phrase give you access to your funds, and keeping them a secret is a top priority.
The Electron Cash iOS app always asks you for your password whenever you open it or if you want to sign an outgoing transaction. In the wallet interface there are five main settings which include wallets, addresses, coins, contacts, and the settings section. The wallet section is basically the main page you are greeted with after entering your password. It shows the name of the wallet(s) and you can toggle to different wallets in the first field on the top of the page. The page will also show you all the transactions that have occurred for that specific wallet. On the very top, there is a blue banner with a green light indicating the client is synced up and online. If it was red this would indicate the wallet is not online and synced to the BCH network.
Moving on to the addresses page it will show a bunch of addresses both used and unused. You can toggle between funded addresses and unfunded addresses, alongside if they are receiving or change addresses as well. The Electron Cash wallet allows users to create contacts by utilizing an individual or organizations’ address so you can easily send funds to any recurring contact. The coins area shows BCH transactions that have been sent or received but are not yet confirmed.
The Electron Cash Wallet Has Numerous Adjustable Settings
The wallet’s settings section is where you can make a bunch of changes to the wallet, like change your password, and view your mnemonic phrase if you needed to see it again. In the settings, the Electron Cash iOS client has an address converter so a person can change a legacy address into the Cashaddr format. This section also offers a variety of features like the ability to change the fee to max static or the user can choose a custom fee. Below that where it says transactions, you can choose to utilize change addresses, multiple change addresses, and whether or not the wallet will spend only confirmed coins. Following this section, you can change the appearance, choose what block explorer you want to use. From here users can also set the fiat settings so you can view the value of coins in USD, EUR, and many other monetary units.
The wallet works very well for being in its beta (3.2.0) testing phase and Electron Cash users will be sure to enjoy this wallet. There were a few occasions where it was difficult to remove the keyboard and view the lower fields on the screen in the earlier versions we tried prior to the 3.2.0 upgrade released just the other day. Since then we’ve found the app works like a charm, and haven’t found any difficulties using it. The Electron Cash developers have also been looking for testers on the subreddit /r/BTC over the past few weeks in order to get feedback.
Written by Bitcoin.com