Litecoin Buys Into a Bank

A New Bank and Fintech Partnership

The Litecoin Foundation, along with crypto payment processor and Litecoin partner TokenPay, acquire 9.9% each of  German Bank WEG Bank AG. Let's look at why and why this is a big deal. By way of disclosure, I'm long Litecoin (LTC) and bullish on it for the future.

Over the last 2 years, we've seen in p2p lending and fintech, in general, many banks and fintech partnerships since banks want the innovation, speed, security, and ability to get new customers that fintech provides. Fintech wants the capital access with lower costs and certain (although still ugly) regulatory environment that banking provides. For instance, Kabbage partners with ING, ScotiaBank and Celtic Bank, while Avant has a big partnership with Regions Bank. Prosper has a partnership with the Western Independent Bankers, a consortium of 160 banks.

But do you know who has been locked out of partnering with banks for their mutual benefit because these firms can't even get corporate checking accounts? Cryptocurrencies.

Cryptocurrencies, even big established ones like Bitcoin, Litecoin, and Ethereum, have trouble getting bank accounts. While Bitcoin or Ethereum isn't a business and in need of an account to issue its cryptocurrency since it's mined, businesses that support it do need them. Businesses in the Bitcoin space and the Bitcoin Foundation, a non-profit that provides support for Bitcoin's code development and advocates for the good Bitcoin can do for others, are the ones struggling to grow when banking is such a big problem. Litecoin and Ethereum have non-profit foundations as well.

Despite being around since 2011, never been hacked, and considered one of the leaders in cryptocurrency, Litecoin's non-profit foundation was having a problem getting and keeping bank accounts. The Foundation is based in Singapore where there are tons of banking options but the environment overall there is not friendly to crypto as far as banking.

Litecoin & TokenPay Partner on Problems

What started as a friendly conversation between Litecoin creator Charlie Lee and TokenPay CEO Derek Capo over Twitter came a realization that both had the same problem with banking. TokenPay, who was already an LTC partner and raised $40 million with an ICO, acquired 9.9% of WEG Bank in April 2018. Their mission works closely with banking since they want to be in debit cards, multi-currency wallets and provide the rails between fiat currency and cryptocurrency. Since they couldn't keep bank accounts active, TokenPay went the acquisition route and bought banking access with this deal.

According to Coindesk's reporting, the LTC Foundation did not put any cash in but was assigned the 9.9% owned by TokenPay while TokenPay went and bought another 9.9% on its own, giving both an equal ownership and a nearly 20% crypto-based or crypto-centric ownership of the German bank. In return, LTC has to provide future ongoing technical support to TokenPay.

The Bank Partnership Announcement

Here's the announcement made by Charlie Lee on July 10th, who is @SatoshiLite on Twitter. By the way, if you are in cryptocurrencies and not on Twitter, you should be. It's where most of the industry news hits first. I'm @StuFinancesTech there. Here is the Coindesk version.

 

 

Why Litecoin Aligned With a Bank Is Such a Big Deal

Many people love the 'altcoins' and many others are Bitcoin maximalists (the cryptocurrency world is only Bitcoin). Yet for most of us, we are somewhere in the middle. Some of the ICOs are sketchy for sure. Most people consider the Big 3 (most important and most influential) as Bitcoin, Litecoin, and Ethereum, and some would include Ripple's XRP in that as well.

One big trend I've seen since 2014 is that there is a separate crypto-economy from the fiat and banking economy. That's not necessarily a bad thing but banks are the gateway into the financial system for most everyone so anything to help the two work together is a boon for crypto given its growing popularity.

Here are just a few of the reasons this could be huge for the industry:

  • Of the Big 3 cryptocurrencies, LTC is the most transaction/payments oriented. ETH is for building blockchain apps and ICOs and Bitcoin is for large-scale transfer of value and store of value. The one most payments oriented, like for your coffee at your favorite coffee shop is LTC. This move could lead to greater adoption of LTC and ease of converting LTC to EUR, the fiat currency of the bank
  • A reliable banking partner lessens the likelihood of a cash flow crunch affecting the development of LTC
  • WEG could become a banking partner for other cryptos and supporting businesses in the same way Zug, Malta, and Puerto Rico are attracting blockchain businesses
  • LTC and TokenPay want to transform WEG into an 'on-ramp for consumers worldwide who want to trade fiat for cryptocurrency or pay for goods and services with crypto' (as quoted in the Coindesk piece)
  • Lee is joining the board of the bank making one of the most important people in crypto able to have a seat at the table to discuss how banking and crypto can work together.

It's not all rainbows and unicorns with this news, some bad things can happen and regulation is always a factor in the outcome. Regardless, this is a huge step forward for the entire crypto industry as we can't have mass adoption of our currencies of choice if access to them is so difficult or limited through banks.

About the author

Stu Stu Lustman, the author of this post, is a Credit Analyst by trade trying to bring Commercial Credit Analysis techniques to the world of Peer to Peer Lending. Check me out on Twitter, LinkedIn and Google+

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