Xapo Bank says it has become the first crypto bank in the UK to enable interest-bearing Bitcoin and fiat accounts after receiving UK regulatory approval. However, Xapo is not a bank in the traditional sense. It only allows it to provide some regulated financial services in the UK through a framework called The passporting scheme.
Xapo, a private bank born out of inflation, is determined to solve the world’s economic problems
Xapo Bank is a private bank established in 2013 and headquartered in Gibraltar. In July 2017, Xapo obtained a European e-money license in Gibraltar, allowing it to provide electronic fiat currency custody and transfer services. In July 2018, Xapo Bank received a BitLicense from the New York State Department of Financial Services and was officially allowed to operate as a regulated Bitcoin business in New York State. The company relinquished its license in January 2022.
Xapo Bank founder Wences Casares became interested in Bitcoin due to the frequent financial fluctuations in his native Argentina. He has said his family's finances have been hit hard by the economy's swing from inflation to deflation to currency devaluation. Casares believes that digital currencies such as Bitcoin "can solve the problem of economic disconnection in the world."
In 2011, Casares purchased his first bitcoins but couldn't find a way to store them, so he built a "vault" for his own use. Friends and later financial institutions soon asked Casares if they could store Bitcoins in his vault. This became the basis of Xapo.
Xapo Bank was founded to make the Bitcoin currency safer and easier to use, Casares said. The company was originally founded to provide a Bitcoin wallet service that combines cold wallets with Bitcoin-based debit financial cards. Xapo Wallet operates through the mobile app and online, and has the ability to transfer funds to and from Xapo Vault. In April 2014, Xapo launched a charge financial card that is linked to a user's Xapo wallet and functions like a standard financial card, except that it is backed by Bitcoin rather than traditional currency.
Coinbase acquires its institutional custody unit to transform business
The company received Series A financing from Benchmark and Ribbit Capital as early as 2014. On August 15, 2019, US exchange Coinbase announced the acquisition of Xapo’s institutional custody unit for $55 million. The business gradually transitioned from a Bitcoin bank to an e-money wallet, and then to a “digital-first” retail bank and virtual asset service provider (VASP) custodian. Xapo combines physical banking with MPC technology and guarantees USD deposits up to the equivalent of €100,000. MPC, or multi-party computation, is a cryptographic technology that can improve existing multi-signature technology and allow wallet keys to be split among multiple parties.
What Xapo offers in the UK
UK users can spend Bitcoin via a Xapo-issued debit card, send GBP payments directly to UK bank accounts, invest in S&P 500 stocks, buy select cryptocurrencies and access stablecoin payment pipelines using a USD bank account. In recent years, fintech companies have struggled to obtain UK banking licenses. However, crypto-friendly financial app Revolut recently received a banking license from the UK regulator. Xapo Bank has been regulated by the Gibraltar Financial Services Commission since 2021 and can provide certain services in the UK, but as of yet is not a regulated UK bank.
In June 2023, former Conservative Prime Minister Rishi Sunak said he was keen to provide clear regulation on how cryptocurrency companies should register and operate in the country – part of the UK’s ambition to become a global web3 hub. There has been some progress on the regulatory front, with the UK Treasury publishing final proposals for future cryptocurrency regulation, outlining the government’s intention to bring crypto-asset activity within the scope of financial services regulation for the first time last October. However, cryptocurrency policy under the new Labor government and Prime Minister Keir Starmer remains unclear.
Britain's financial regulator, the Financial Conduct Authority, counted around 10% of the country's population holding cryptocurrencies as of June 2023, but has taken a cautious stance on the industry to ensure investor protection while trying to promote innovation.
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