Crypto bank Xapo obtains regulatory approval in the UK, enabling Bitcoin payments for consumers.

Xapo Bank has announced that it has become the first cryptocurrency bank in the UK to offer interest-bearing Bitcoin and fiat accounts after obtaining regulatory approval from the UK. However, Xapo is not a traditional bank in the strict sense, as it operates under a framework called The passporting scheme, allowing it to provide regulated financial services in the UK.

Xapo, a private bank born out of inflation, aims to tackle global economic problems

Xapo Bank is a private bank founded in 2013 with headquarters 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 was granted a BitLicense by the New York State Department of Financial Services to operate regulated bitcoin businesses in New York. The company relinquished the license in January 2022.

Xapo Bank's founder, Wences Casares, became interested in Bitcoin due to the frequent financial volatility in his home country, Argentina. He stated that his family's financial situation had been greatly affected by economic shifts from inflation to deflation to currency devaluation. Casares believes that digital currencies like Bitcoin "can solve the disconnect in the world economy."

In 2011, Casares purchased his first bitcoins but struggled to find a way to store them, leading him to build a "vault" for his own use. Friends and later financial institutions quickly inquired if Casares could store bitcoins in his vault, laying the foundation for Xapo.

Casares mentioned that the purpose of establishing Xapo Bank was to make Bitcoin currency more secure and user-friendly. The company initially aimed to provide Bitcoin wallet services by combining cold wallets with Bitcoin-based debit cards. The Xapo wallet operates through mobile apps and online operations, enabling funds to be transferred in and out of the Xapo Vault. In April 2014, Xapo launched a debit card linked to users' Xapo wallets, functioning similarly to standard debit cards but backed by Bitcoin instead of traditional currency.

Coinbase Acquires its Institutional Custody Division, Driving Business Transformation

Back in 2014, the company received Series A funding from Benchmark and Ribbit Capital. On August 15, 2019, the U.S. exchange Coinbase announced the acquisition of Xapo's institutional custody division for $55 million. The business gradually shifted from being a Bitcoin bank to an e-money wallet, then to a "digital-first" retail bank and Virtual Asset Service Provider (VASP) custodian. Xapo combines physical banking with MPC technology and guarantees deposits equivalent to $100,000 in euros. MPC, or Multi-Party Computation, is a cryptographic technology that enhances existing multi-signature techniques by splitting wallet keys among multiple parties.

Services Offered by Xapo in the UK

UK users can spend Bitcoin through the debit card issued by Xapo, send GBP payments directly to UK bank accounts, invest in the S&P 500 index stocks, purchase selected cryptocurrencies, and access stablecoin payment channels using a USD bank account. In recent years, fintech companies have found it challenging to obtain UK banking licenses. However, crypto-friendly financial app Revolut recently obtained a banking license issued by UK regulators. Xapo Bank has been regulated by the Gibraltar Financial Services Commission since 2021 and can provide certain services in the UK, although it is not yet a regulated UK bank.

In June 2023, former Conservative Prime Minister of the UK, Rishi Sunak, expressed enthusiasm for providing clear regulations on how cryptocurrency companies should register and operate in the country as part of the ambition for the UK to become a global center for web3. Some progress has been made in regulation, with the UK Treasury issuing final proposals for future cryptocurrency regulation, outlining the government's intent to bring crypto asset activities under financial services regulation since October last year. However, the cryptocurrency policies under the New Labour government led by Prime Minister Keir Starmer remain unclear.

The UK Financial Conduct Authority statistics show that as of June 2023, around 10% of the population in the UK holds cryptocurrency, but the country has taken a cautious stance towards the industry to ensure investor protection while promoting innovation.