How to find a Bitcoin-friendly bank Part 1

The problem

 

From this series of articles you will learn about one of the most important issues that Bitcoin ATM operators have to deal with. This issue is building a relationship with a conventional bank, the one that works with regular currencies.

As an operator of a Bitcoin ATM, you will be facilitating the transaction from cash to Bitcoin and/or vice versa, which means that you will be dealing with a lot of cash. The issue here and the reason why you need a relationship with a traditional bank is that you can’t send cash to the exchange directly.

You would need to have an account with a Bitcoin exchange and a way to add money to your exchange account. The easiest way to add money is by a wire transfer, and this is where you relationship with a regular bank comes into play.

 

Why you would need a relationship with a regular bank

A typical process of how a Bitcoin ATM operates would look like this: customers deposit cash into your Bitcoin ATM.

You then take the cash to the bank and wire funds to an exchange, where you buy Bitcoins with regular fiat currency. Then, you sell the Bitcoins using your ATM for cash and the process continues. Obviously, a regular bank is a very important part of this process.

Before talking about working with regular banks, this article will explain why working with a bank can be a problem because before talking about solutions it is important to understand why there may be a problem in the first place.

 

The conflict between cryptocurrencies and the traditional banking system

The problem has three parts to it. The first part is that in essence, Bitcoin and other cryptocurrencies exist to make the regular banks obsolete. If there was no problem with how regular banks operate, there would be no need for Bitcoin and other cryptocurrencies.

Satoshi Nakamoto, the creator of Bitcoin, has launched the Bitcoin network in 2009, in the aftermath of the world financial crisis.

In large part, the crisis has occurred because of the subprime mortgage crisis in the United States. The main reason for the crisis was that the banks in the United States have been operating based on the erroneous assumption that real estate values in the United States would be going up for a very long time.

Here’s what this means practically. Let’s say that there is a home that costs $500,000. If the value of the home will be going up, let’s say it will be $525,000 in 3 months and $550,000 in 6 months, then a bank can give a mortgage to almost anybody, even a person with a poor credit history and a job with which the person can’t really afford to buy a home. Let’s say such a person gets a mortgage for $500,000. Even if the person can’t pay a mortgage in a few months, if the prices of real estate properties keep going up, the person would be able to sell the home for more than $500,000, which means that he or she would be able to pay the bank back and even have some profit left.

After giving out such mortgages, banks in the United States would package them together into what in financial terms in known as asset-backed products. Then, the banks would trade these products on the markets. Mortgage-backed securities were one of such products. Mortgage-backed securities were one of the reasons why companies such as Bear Sterns and Lehman Brothers went bankrupt during the crisis.

The markets for many of these products were international. The United States had a reputation of a very strong player with a solid economy, which is why many of the banks all over the world were buying American mortgage-backed securities assuming that the securities were safe assets that came with very little risk. When the crisis started, banks in countries such as Iceland and Japan began to have issues because many of their assets turned out to be worthless.

For instance, in Iceland three biggest private banks all went bankrupt at the end of 2008. While the number of banks that had issues in Iceland may not seem large, it is important to remember that the country is very small compared to the United States or United Kingdom, with the population of the entire country being equal to just above three hundred thousand people, which is why the financial crisis had the biggest impact on the economy compared to the impact in all other countries.