Bitcoin startups stalled by banks

Earlier this month, the price of bitcoin went over US$3,000 for the first time in its eight-year history. The pioneering cryptocurrency has risen rapidly over the past few months, because of high demand in China plus Japan recently allowing bitcoin to be a legal means of payment. Its price is still volatile (as I write this, it’s dropped back to $2,400), but the general trend for bitcoin is upwards.

Other so-called “alternative” digital currencies are also flying high. Ethereum’s ether token went over $300 last week, for the first time in its less than two-year history. One cryptocurrency hedge fund manager, Tim Enneking, told CoinDesk that “bitcoin is growing at a very nice pace, but non-bitcoin cryptocurrencies are growing even faster.” To give you an indication of how fast cryptocurrencies are increasing in value, in February last year I wrote a guest article for CoinDesk about using bitcoin for online payments. At that time, bitcoin was worth “just” US$372. So it’s had an eight-fold increase in value since then (and yes, I’m regretting not buying any at the time).

Despite the boom in bitcoin and other digital currencies, it’s difficult to participate in this revolution from New Zealand. Mainly because there aren’t many local bitcoin exchanges, let alone trading options for Ethereum or any other contender. A Stuff article from a year ago even claimed that bitcoin in New Zealand is “next to unusable.” I wouldn’t go that far, but the fact is we’ve been slow to adapt to cryptocurrencies.

One local startup has tried to step up to fill the gap. The grandly named NZBCX was founded by software developers Dave Seyb and Rob Clarkson. Seyb has plenty of experience developing financial systems, citing “12 years running exchange-trading platforms in Tokyo.” Even so, NZBCX is still a beta product at this point. Its website explains that the exchange is “live in an unofficial capacity” and only “selective trading” is taking place.

A FinTech industry without cryptocurrency is simply absurd in this day and age.

I asked NZBCX co-founder Dave Seyb what the market for Bitcoin is like in New Zealand. He told me they have “well over 2000 users” and there is “several hundred thousand dollars going through our accounts every week.” So it’s relatively small, but there is plenty of interest (pardon the pun). As the architect of the site, Seyb says he created it as a first step “to build out the technology and infrastructure required for bitcoin to succeed and gain legitimacy” here in New Zealand.

The problem, according to Dave Seyb and other bitcoin insiders I spoke to, is that local banks are cracking down on cryptocurrencies. Bank accounts that are used to buy bitcoin are at risk of being closed. “NZBCX is a bitcoin exchange and like anyone dealing with cryptocurrency in New Zealand, faces an almost automatic bank lockout,” said Seyb. “This makes it impossible to get venture funding.”

Kiwibank’s Digital Advisor, Peter Fletcher-Dobson, doesn’t dispute that it’s hard for bitcoin exchanges to establish themselves here. “The big challenge for cryptocurrency businesses in New Zealand,” he told me, “is that it is very challenging for them to operate legally, because there is no true digital identity solution that bridges crypto and fiat financial systems.” In short, New Zealand banks have opted to take a conservative, risk-averse approach to cryptocurrencies. Whereas countries like Japan and China have been much more willing to experiment.

So for now, bitcoin is growing without the support of local banks and is largely under the radar as a result. Nevertheless, NZBCX co-founder Rob Clarkson told me they’re experiencing strong growth, on the back of what he calls the “second wave” of worldwide adoption for bitcoin. “Dave and I are flat out at the moment, verifying users for the exchange,” he said. “We have lots of switched on guys registering – CEOs of big online companies, heads of trading at banks, etc.”

Outside of NZBCX, there are precious few other options in New Zealand for trading bitcoin. The website BitcoinExchange.co.nz lists only four local exchanges: NZBCX, bitNZ, Bit Now, and Tua. As at time of writing, only NZBCX is recommended. Tua is listed as “Closed Down,” Bit Now is “Site not responding” and bitNZ “can’t accept NZD deposits.”

I reached out to the person who runs BitcoinExchange.co.nz, who wishes to remain anonymous. I asked him what is the best way for kiwis to get started trading bitcoins, or indeed other cryptocurrencies like Ethereum’s ether token? “The best way to get started with trading bitcoins,” he replied, “is on one of the exchanges. NZBCX is the longest running and most reliable. Grab some bitcoin, then you can take it to Poloniex or Bittrex or Kraken [three overseas exchanges] and get any of the other cryptos that you want.”

The upshot is that cryptocurrency investing in New Zealand is something you’ll need to do on the down-low. Although Kiwibank’s Peter Fletcher-Dobson thinks there are promising developments overseas. “Central banks in Singapore, UK, Russia and China are researching and creating digital fiat currencies using the blockchain,” he said, “so it is very much a market that’s only going to grow.”

However New Zealand needs to get a move on, otherwise we’ll miss out on the massive opportunity presented by cryptocurrencies. Our banks must step up. “I think banks could play a key role in providing safe on-and-off ramps for consumers to participate,” acknowledges Fletcher-Dobson. He suggests “potentially creating some regulatory sandboxes” to allow experimentation.

Let’s hope that happens. Our local FinTech industry has high hopes of becoming a worldwide hub. But to do that, New Zealand needs to support cryptocurrency startups like NZBCX. A FinTech industry without cryptocurrency is simply absurd in this day and age.

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