Cryptocurrency advocates often blame banks for what's broken in finance. Banks took customer savings and invested them in risky mortgage packages without disclosure. When those investments collapsed i
Cryptocurrency advocates often blame banks for what's broken in finance. Banks took customer savings and invested them in risky mortgage packages without disclosure. When those investments collapsed in 2008, ordinary people paid the price.
Magnr, a London-based platform, thinks it can offer what people actually want from banking—without the deception. The company recently shifted its brand from btc.sx to Magnr and launched what it openly calls a bitcoin bank. Rather than shy away from the term, Magnr embraces it.
The first product is straightforward: a savings account. At 2.35% annual interest, it dwarfs what traditional banks pay. Most banks offer between 0.001% and 1%. Magnr also operates a leveraged trading service across three major exchanges—Bitfinex, Bitstamp, and itBit—with 10:1 leverage available.
The appeal hinges on a simple principle. Banks provide useful services. They give you somewhere secure to store money. They enable financial transactions. But banks also withhold information. They control what you see about your own account. They move money into instruments you don't understand, without asking permission. Magnr's pitch is that you don't need a middleman to take those hits.
Colin Kwan sits as CEO of Magnr and on the board of the UK Digital Currency Association. He discussed the company's direction, its views on regulation, and where cryptocurrency adoption is headed.
Why change the name from btc.sx?
"Initially BTC.sx was intended as a starting project. It quickly gained a lot of traction and followers, but it was not the overall direction we wanted to go. When we came out with the savings platform, we decided to rename the brand." Kwan explains that branding mattered for a second reason: "At the time, there was a concern over if BTC or XBT was going to become the currency ticker of choice. Besides, we wanted to be cryptocurrency agnostic. We never know what will be big in the future. It could be Litecoin, it could be Bitcoin, it could be Ethereum that is used in the future. The new branding also means that we can start looking at digital asset classes other than bitcoin. Maybe something wrapped around futures and options."
The company plans to expand beyond bitcoin?
"No, we are definitely going to continue moving towards that," he says. On the question of whether altcoins themselves will trade on the platform: "We could do that. we just haven't because of the market volume. People like the altcoin exchanges, but we are not trading those because the market volume is not high enough. That said, we can allow that to happen. In the future, digital assets could be based on different cryptocurrencies than just bitcoin. Let's say the Bank of England comes up with their own version of bitcoin to manage their currencies. We could start trading that."
The Bank of England has publicly discussed blockchain currency concepts. Kwan has participated in those conversations through his role at the UKDCA. "It is something that has been talked about rather openly. I am the CEO of Magnr and the director of UK Digital Currency Association, and part of our mission at the UKDCA is to talk to the treasury, the Bank of England and the policy makers. We explain to them what digital currencies actually mean to the UK and how the UK can even benefit from these types of currencies. One of the discussions that the Bank of England brought up was whether they could start issuing GBP on the blockchain. That is different than creating their own currency, but it would be significant. However, a lot of governments have been toying with the idea of how to do something like this."
The Bank of England wants to digitize its currency for a reason. "The biggest issue with their currency, is that they know how much they have printed, but they don't know how much is really in circulation. A lot of these bills have been washed away, burned, destroyed, taken to different countries, and used in foreign countries, like we see with the dollar. They don't know where these notes are and they want to be able to track them. That is essentially the whole point of them creating these digital currencies."
Would central bank cryptocurrencies compete with Bitcoin?
Kwan's answer: "Well, the thing is, Bitcoin is a global currency. At least, I view it as a currency. Some people might not, but it is an asset of value that people can transfer around and barter with, so it is an asset of value at least. Now, for an example, Japan was also talking about doing something similar. So there is a network effect going on here. Bitcoin is a network people can use all over the world. Not everyone can use Japanese Yen, not everyone can use the GDP. If it were available as an altcoin on the global market, then potentially it could disrupt bitcoin's thunder. I don't see that as likely, because of the nature of every government jurisdiction and how they treat their currency. Currency manipulation is one lever that governments use to control their populations. They can change interest rates, they can do all that through the manipulation of the currency. Humans generally dislike that type of control."
On Magnr's fee structure, the company charges: "Our trading fees are 0.45% for opening and 0.45% for closing, because every trade we make goes off to the market. It goes to Bitfinex or Bitstamp or itBit and there are commissions on those trades. There is also a daily fee of is 0.3% that is only charged after a 24 hour period. If you close you position before 24 hours, you don't have to pay that daily fee."
BitGo recently announced zero-confirmation transactions. Does that change Magnr's settlement approach?
"We are looking to utilize some of that. It is something new that they came out with and we would like to try it and see how it works with us. That will definitely help people that are doing day trading. The difference with Magnr is that a lot of people have savings with us, so with them switching between internal accounts is something we would have to consider also."
Non-leveraged trading will arrive at some point?
"We are looking at that as one of our next tier products to come out. Effectively, you could utilize the high volume trading that we have. We have such high volume trading that we can get a lower rate with some exchanges, so we are looking into doing that. We have had a lot of inquiries about that, it is something we have on our timeline, it is just a matter of getting some other things out of the way first. They are nearly done, it is just a matter of creating these kinds of tiered features."
The IMF recently released a report saying cryptocurrencies themselves resist regulation, so the services built on them should be regulated instead. What does Kwan think?
"I wouldn't say that cryptocurrencies are resistant to regulation. I think current regulations have been created to manage existing problems. A lot of regulations started out a hundred years ago. Then someone did something and a new regulation was made to deal with that. Over the years, more and more regulation was piled on top of it. If you look at the underlying regulations, they could probably be limited to three or four pages of what the regulation was supposed to be. But when you add all the nuance and differences and new cases and problems that came out of it, you got a regulation that if you put each piece of paper end to end, would probably reach to the moon. Current regulations aren't designed to be slapped on top of cryptocurrencies. They need to re-review what their regulations are about and figure out how it can be applied to cryptocurrencies. They also need to figure out how it can be applied to something that is on the internet and no one really has control of. Cryptocurrencies are not resistant to regulation. From a customer/consumer perspective, there should be some regulation, but who is going to regulate that?"
Kwan's work with the UKDCA has pushed toward creating international standards. "There is definitely a need for an international standard. Being a part of the UK DCA, we are looking to help establish what we call the IBC, the International Blockchain Committee. We want to have international bodies as representatives and create a standard across all blockchain systems. The key aspect here is the underlying technology and how it is used. One of the problems is that we are talking about international institutions and each jurisdictions has its own stack of regulations. One of the main issues with regulations across borders, is trying to get two governments to agree. At times, that seems next to impossible. So the job of the IBC will to create standards that will start as optional, but eventually we will be able to say "everyone should abide by these." Hopefully, that will increase the trust and use of Bitcoin and related technologies."
On whether Bitcoin needs regulation at all: "In my opinion, Bitcoin is still in its infancy in how it is used. There are a lot of issues that governments have with their own currencies that don't apply to bitcoin. Slapping on regulations for the sake of having regulations is probably not the best practice. You need to have some proper use cases to really figure out how it should be regulated or even to make standards. You need to create standards based on usage."
Will self-regulation suffice? "So far, we have seen a lot of self-regulation, which is both good and bad. People are getting more intelligent with how they spend their funds. With social media and things like that, if a company does something horrible, then people don't do business with that company anymore. That is a form of self-regulation."
Magnr experienced the Mt. Gox catastrophe. The company had exposure to that exchange. When it failed, Magnr absorbed the losses rather than ask customers to take a hit. The approach has informed how the company handles exchange risk now.
"Yes. There were a couple instances where Bitfinex had a problem, later Bitstamp had some issues. We still had at least two of the other exchanges up, so that allows people to continue to trade. The only issue here is that if people had an open position with the [affected exchange] then that was a difficult situation for us. Essentially, when the price opened up again and traders couldn't actually do anything, we again, took the losses. In that instance, we deemed it unfair to the traders to not be able to trade. Now, that was a cost to us. However, as a company that is trying to grow and be as transparent as possible, that was the best way for us to be more customer driven."
Magnr's savings account has exceeded expectations. The product addresses a real need among traders. Many hold bitcoin for the long term but don't want it sitting idle. "People love it. A lot of our traders have asked for this before. They don't always trade so whatever is sitting there just sits dormant. If you know day-trading, you know that you sometimes find a stagnant market and therefore you don't do many trades. During the time frame where that is happening, traders want to be able to hold their bitcoin somewhere, rather than keeping it in a wallet doing nothing. A lot of the traders move their funds into the savings and then when they want to trade, they move it back into trading. We have also seen a lot of people just looking to park their bitcoin, because they are hoping that the price will go up, but at the same time they want to get some sort of return on their funds for parking them somewhere. That is what we started. The reason we came up with the 2.35% is because it is something we can afford, however it is a promotional rate. We set that as an industry first mover rate. We are looking to create a lot more products like that, not just to encourage people to use our products, but also to prove to people that you can earn a lot more in Bitcoin than you can in your current currency's markets."
Will managed funds come next? "Yes, we will be looking into things like that. With P2P lending sites, you are essentially dealing with another peer and that peer may default on you, so you are taking the risk. Not to say that isn't a good thing, P2P systems are good for that if you are willing to take that risk. We have found that some people don't want to take the risk. It is human nature, they don't know how to manage that risk. So they are saying "here is a sum of money and I want to get a certain return, can you manage that for me?" and those are the kind of products Magnr will be creating, managed funds."
What will the Bitcoin landscape look like in five years?
"The rate of adoption in bitcoin is increasing rapidly. Now you might not think that is the case, especially in the western world, but that is because in the west we have our credit cards, we have our bank accounts, we have faster payments, we even have the technology for tap and pay. A lot of countries are still working on Checks, but that is still a system that works. Apple Pay is showing that you can do everything digitally, so why do we need anything else? We aren't very open to new ideas because we already have things that help us."
The story changes in emerging economies. "Meanwhile in emerging markets, in the Philippines and Kenya and even China, which has a lot of its population outside of the cities, they don't have the infrastructure we have in the first world. They sometimes have to go hundreds of miles to get to a bank. They don't have the infrastructure we do, but they do have mobile phones. Mobile technology is advancing the way we do commerce. Today, you can't send Kenyan Schillings through the mobile network, but a company created M-Pesa. M-Pesa is similar to a digital currency and it can be converted into Kenyan Schillings. What that means is that people in that region, using that network, can transact in M-Pesa in between eachother. That is a true usecase, they don't have to hold Kenyan Schillings."
Bit-Pesa connects this ecosystem to Bitcoin. "Now, enter a company called Bit-Pesa, which allows people to transfer bitcoin from the UK and the US, back to Kenya using Bitcoin. The Kenyans then change that bitcoin back into M-Pesa or Kenyan Schillings. Something to note here, is that these community based countries, once they find a new technology or service that they can use in the community, they gravitate towards it very quickly."
Kwan offers a concrete example: "Sellers and buyers no longer have to meet in centralized marketplaces every time they want to make a deal. A leather producer who already has a relationship with a goat seller can make a purchase without carrying what may be a large amount of money to the marketplace, and can instead send bitcoin and wait for the goats to be delivered or pick them up himself. The risk for the seller and buyer is now cut in half, rather than having to worry about something going wrong with the transfer of the money and the goats, now only the goat's travel has to be considered. Additionally, if the leather producer held his money in a bank, that is another, potentially lengthy, trip that the producer gets to skip thanks to bitcoin."
Cross-border transactions show the most dramatic gains. "Another example of that is Kenyans going to Uganda, which is just across the border. They have to go through money exchanges and change their Kenyan Schillings into Uganda Schillings and the exchanges are charging a 20% commission because there are no banks at the border to compete with them. Ugandans are starting to learn about bitcoin, so instead of dealing with the 20% fee, they are just doing the exchange in Bitcoin. And this is happening all over Africa, which has the highest rate of bitcoin adoption, followed by Asia. The rest of the world will catch up later. So, my short answer, is that Bitcoin will be huge in five years."
Magnr has grown to over 20,000 registered users. "Well, I guess this is more of a marketing ploy, but if you have bitcoin, go to Magnr, save your bitcoin there and you can earn an interest rate. If you are an avid trader, you may like our trading platform, we have over 20,000 registered users who love the platform and I don't anticipate you'll experience any issues."
