Neo&Bee, a bitcoin financial company based in Cyprus, is having its IPO today.
I was initially very excited to see a consumer bank embracing bitcoin. But as the situation unfolded I became more and more uncomfortable with the business proposition.
What it boils down to is that Neo bank will be taking customer deposits in euros, and performing normal banking operations such as lending and paying interest on time accounts. It walks like a euro bank, and it quacks like a euro bank. But deposits will be kept in bitcoin.
This is presented as a feature. I cannot understand why.
The problem is the same problem that a euro savings bank would have if it kept its deposits in gold, or petroleum futures. If the underlying asset tanks, there will be a run on the bank and it will fail.
Cypriot depositors, burned hard by the banking system meltdown, want their deposits safe. This is about moving money out from mattresses and back into the banking systems where it can be used.
Instead, Neo bank will buy bitcoin with their euro deposits. We are assured the euro value will be preserved in the case of a sharp fall in the price of bitcoin, by a sophisticated proprietary hedging operation that is the Neo secret sauce.
Proprietary means never explained.
If the price of bitcoin increases, Neo bank wins huge, and its depositors get single digit interest.
If bitcoin/euro falls Cyprus depositors get burned. Again.
But this time by bitcoin.
If I was a savvy central banker that wanted to see bitcoin fail, I would covertly support Neo bank so that it can be killed later and used as an excuse to to over-regulate bitcoin and block it from interacting fluidly with fiat financial system. I doubt central bankers are that machiavellian, but who knows.
In short, Neo bank is an ETF being marketed as a savings and loan. That’s not an honest value proposition.
Proposed Winklevoss ETF: you deposit in dollars, the dollars are converted to bitcoin. If the value of bitcoin crashes, you lose. That’s honest, because investors expect the risk.
Cyprus Neo Bank: You deposit in euros, the euros are converted to bitcoin. If the value of bitcoin crashes, you lose. It’s not honest, because it’s supposed to be a savings bank.
I can’t conceive of Neo getting a banking license, but with the political situation in cyprus as screwed up as it is, who knows what happens behind closed doors.
This problem is discussed on reddit at
including response from cryptocyprus, spokesperson for Neo&Bee bank. The justification isn’t too encouraging.
More of same here:
I also received a non-explanation of the hedging strategy from cryptocyprus (Neo PR) at
that wasn’t even grammatical, yet alone informational.
Bitcoin needs adoption by the mainstream financial community, but the Neo offering is a heads I win, tails you lose scenario that deserves to be rejected.
Bitcoin IPO fever means their ongoing IPO will propably succeed. And if bitcoin value doesn’t tank, the Neo bank could succeed as well.
But it will all be a lie built on the exploitation of a cypriot population that has already been badly traumatized.
I think Neo bank means well, but they are blinded by the bitcoins.
By contrast, CFIG is doing it right. No lending, and they are not a bank, just a platform that plays nicely with banks.
I am not buying the Neo&Bee IPO.