Neo&Bee Cyprus Bitcoin Bank is Stealth Bitcoin ETF

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.

About thomashartman1

I am a crypto currency enthusiast, trader, and software developer. Contact: thomas AT standardcrypto DOT com.
This entry was posted in Uncategorized. Bookmark the permalink.

7 Responses to Neo&Bee Cyprus Bitcoin Bank is Stealth Bitcoin ETF

  1. Danny Brewster says:

    Your representation of what we are offering is somewhat very misconstrued, we are not offering lending services upon start up, that is a future possibility, the response you got was whilst I was in the car sat at the traffic lights, so apologies for the poor grammar. We are not essentially a bank with what we are offering. Maybe we should operate as 3 separate entities to explain it clearly. An exchange with branches where you can buy Bitcoin from our reserves, A wallet service to keep those Bitcoin and in exchange for a percentage of any growth we will protect your wallet by topping it up when the rate falls from our own reserves if you keep that wallet without any withdrawals for a fixed period of time. The third company would be a payment gateway.

    As for hedging we have opened up traditional trading platforms to integrate Bitcoin, that will provide the added liquidity required, some are calling it a very positive step forward in itself.

    • thomashartman1 says:

      Neo&Bee is clearly being marketed as a bank, including by a post I think you made yourself at

      I very much want to see this venture succeed, as I think it will do wonders for the bitcoin ecosystem.

      However, risks need to be communicated honestly to customers.

      Perhaps operating as three entities would be better.

      With the current model, I can see a customer making a euro deposit believing the euro will be safer in Neo bank than in the cyprus banks that have proven unreliable.

      As much as I like bitcoin, I think a customer in the above scenario could feel shocked and cheated if neo were unable to hedge itself according to plan. And that is a real possibility, even if you execute brilliantly on the hedging platform. Things can always go wrong.

      If you present this as a wallet service, where neo keeps the customers bitcoin, and will pay back what amounts to more or less of the original bitcoin depending on what the euro/bitcoin exchange rate does, and this is spelled out very clearly, I think this could work better. It sounds like the customer would be sacrificing some potential price gain in exchange for security that they will get at least their original euros back, plus some extra. That’s reasonable. As long as that is what the customer understands.

      Right now there is a gold rush going on, and cypriots are willing to try new things since the old things aren’t working. You need to be thinking about the future when the fever has died down a bit and people are thinking clearly again. The wallet deal needs to make sense, the customer needs to understand what he is getting.

      I think it might also be prudent to stop referring to this venture as a bank.

      • Danny Brewster says:

        Locally we don’t even use the word deposits, let alone the word Bank because that has a very negative stigma attached to it. The ‘bank’ tag was derived from earlier postings on the concept, when acquiring feedback and inputs. Cypriots are not just willing to try anything new, they haven’t had the chance to try anything new yet. If they were actively partaking in the “gold rush” would there be a need for a simple solution?

        The customer will be more than aware as to what they are getting and the risks connected. Feel free to drop by when we open to check this out for yourself.

    • thomashartman1 says:

      It seems that with the wallet service with the pegged accounts, there is almost no benefit to the customer.

      They don’t participate in bitcoin appreciation if the price goes up. If the price goes down, they have counterpart risk with neo holding up its end of the bargain.

      Why not just keep euro under a mattress?

      Wealthy customers will be sophisticated enough to either buy bitcoin outright or find some other way of preserving par euro value.

      So I can really see the little guy getting screwed here by investing in something they don’t understand, that seems safer than under the mattress, but really isn’t.

      • Danny Brewster says:

        The wealthy depositors here in Cyprus hold hundreds of millions of Euros (or they did before the haircut).

        The benefits of the instant access pegged accounts that receive no upwards trend payments is the fact that their money is easily accessible, it is safer than keeping the euros under the mattress because once every thief realizes that they can get rich with one burglary, theft becomes a real issue. There is also the added incentive to stimulate spending with a reduced fee when transactions are made on that account.

        The benefits of the pegged time based accounts are potentially higher than anything they can achieve with a traditional bank. Yes we will be marketing it as “potential” returns and not guaranteed.

  2. Pingback: Neo&Bee Cyprus Bitcoin Bank is Stealth Bitcoin ETF |

  3. Pingback: Nothing Neo Under the Sun |

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s