Bitcoin is complex. Investors who understand risks of investing should be able to invest in and day-trade in bitcoin, without having to create yet another brokerage relationship, or having to learn, install, and continuously upgrade new wallet software.
Most investors have their money in brokerages and trade over the internet.
Their computer screen can now look like this:
Brokerage firms can now benefit from the Bitcoin technology for two reasons:
1. These brokerages already have most investors as their customer.
2. These brokerages already have researched and complied with all the Anti-Money Laundering (“AML”) laws, and have established robust and well-functioning “Know-Your-Customer” (“KYC”) procedures.
With such a head start, brokerages can act as front ends to 3rd Party Bitcoin Service Providers (BSPs) right away, and facilitate such transactions.
Legal Due Diligence
Brokerages will have to clear regulatory hurdles, and be allowed by the Government to pass through these transactions between their investors and the BSPs.
No Risk
- Brokerages never need risk exposure to Bitcoin’s price volatility: The investor will be advised of and will absorb all that.
- The Brokerages only need serve as front-ends to the BSP: If something goes wrong the investor can take it up with the BSP.
Fees, fees, fees!
- The Brokerages can collect fixed-amount or %-based fees from their investors for converting to/from Bitcoin, higher than what it costs them to transact with the back-end BSP.
- There can be extra fees if the transaction is to happen immediately, as opposed to overnight. Waiting for overnight will allow the brokerages to group transactions and pass to the processor only the net amount, thus lowering their costs.
This co-operation is beneficial to the BSPs as well, as they get access to customers who have already been vetted for AML, KYC.
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