Bitcoin bottleneck continues to frustrate kiwis

Bitcoin has been rapidly appreciating in value over the past couple of years. Yet for kiwis wanting to buy or trade bitcoin, the process is opaque and risky. For that we can blame our banks, which have not embraced cryptocurrency like many overseas banks have.

It feels like ordinary New Zealanders are missing out on a revolution. Back in February 2016, I wrote a guest article for a popular US bitcoin blog called CoinDesk. At that time, bitcoin was worth US$372. I wish I’d bought some then, because it’s currently worth over US$4,000 – a ten-fold increase in value in less than two years.

I didn’t buy any bitcoin back then because it was too difficult to do so from New Zealand. Admittedly I could’ve figured out a way to purchase bitcoin using an overseas service, but the point is: trading bitcoin is not completely legal yet in New Zealand.

That’s because New Zealand banks do not support bitcoin, or any other cryptocurrency for that matter. The banks claim this is due to anti-money laundering regulations, implying that bitcoin has a high risk of being used for criminal purposes.

Instead of supporting bitcoin, our banks are closing down accounts that trade in it. At a Wellington cryptocurrency meetup I attended in July, it was suggested that $10,000 was the unofficial threshold for banks to take action. Anything over that amount and your account will be shut down.

Despite the risk of bank closures, there are a few small bitcoin exchanges in New Zealand. The two that have lasted the longest so far are NZBCX¬†and BitPrime. But it’s not an easy existence for these services, because they rely on workarounds to avoid trouble with the banks. BitPrime founder Geoff Palmer told Stuff in June that he uses personal bank accounts for money transfers, to avoid being “locked out” by banks.

I contacted NZBCX co-founder Dave Seyb to find out how his business is doing. “We are still seeing far more demand that we can service,” he told me, “with the bottleneck still being the banking situation.” NZBCX has grown from two thousand to ten thousand users over the past few months.

So clearly there is plenty of demand in New Zealand. But unlike similar exchanges in the US and elsewhere, NZBCX and BitPrime cannot guarantee that the banks won’t close down the accounts of their customers.

One newcomer on the local bitcoin scene is a cryptocurrency exchange called Dasset (which stands for “Digital Asset Exchange”). It’s currently in private beta and plans to launch in October. I reached out to its CEO, Stephen Macaskill, to ask whether he has any further clarity from the banks.

Macaskill told me that while New Zealand banks “are still shutting down some accounts,” there is an understanding that they must “change their internal policies to accept this new industry.” Dasset has been trying to help the banks get to grips with cryptocurrency, and in particular teaching them “how digital currency works with compliance.”

Another relative newcomer is MyBitcoinSaver, which has positioned itself as a kind of KiwiSaver for bitcoin. Its COO Matt Gibson described it to me as a “micro-savings platform” that allows kiwis to pay a weekly amount (from $10-200), and then take a share of a bulk bitcoin purchase by the company. He said MyBitcoinSaver is for “bitcoin first-timers that are quite daunted with buying bitcoin themselves, or for people that just want a ‘set and forget’ approach to buying bitcoin.”

According to Gibson, none of their customers has had their bank account shut down. He said that’s because their users generally only buy bitcoin and don’t sell it. “Also they are buying it in small amounts,” he added.

While it’s great to see local entrepreneurs finding work arounds for kiwis, the lack of support from banks is a huge frustration for everyone. Perhaps a big shot from Silicon Valley can help remedy that situation?

Well interestingly enough, we are about to receive a very well-connected immigrant. Coinbase is one of the world’s biggest bitcoin exchanges, and its co-founder Fred Ehrsam is moving to New Zealand. Ehrsam has been accepted as a Fellow in the inaugural cohort of the Edmund Hillary Fellowship (EHF), a government supported programme offering three-year Global Impact Visas to “high-impact” immigrants. Ehrsam’s primary goal, according to the EHF, is “to start a dialogue with New Zealand regulators and create a global model for blockchain regulation.”

Given that Coinbase operates without any hassle in the US, UK and multiple European countries, it’d be great if Ehrsam took up the case with our banks and governing bodies. Although he no longer works at Coinbase, his bitcoin expertise and connections are clearly much needed.

With that said, it’s not as if there aren’t smart people at our banks. There are; and they know full well that cryptocurrency will be a big part of the future of money.

Our banks and government simply must unplug New Zealand’s bitcoin bottleneck. It’s an ongoing embarrassment to our country, and particularly our FinTech sector, that kiwis cannot easily use digital currencies.