Cyprus, Bitcoin and bank deposits..

The stories we hear on the recent freeze and confiscation of funds held in bank accounts in Cyprus seems to be more focused on individuals. In the UK we have heard many stories of retirees who had the bulk of their savings in a Cypriot bank, with one poor couple having just sold their property in Cyprus, with the funds sitting in a Cypriot bank prior to repatriation to the UK. They are now looking at a probable 60% loss.

We hear less about the businesses that have Cypriot bank accounts, but I would assume that there are a lot more business’ holding over E100k than individuals. Russian businesses and individuals had 30 billion euros.

Russian President Putin thinks this is a good thing for Russia, saying recently: "the more you 'pinch' foreign depositors in the financial institutions of your countries the better for us”.  And, when asked if he was offended by the fact that the European states had not consulted him he replied: “of course not. On the contrary, to a certain degree I am even glad because this exposed all the inefficiency and all the unreliability of placing deposits in Western financial institutions."

It seems that the Russian banking sector may not be the only benefactor. Mt. Gox is the world’s largest Bitcoin exchange, claiming to execute 80% of global BTC transactions. In recent months its registrations have surged with 60k in March alone, executing 420k transactions with a notional value of US$121m.

WordPress  is a global business providing off the shelf high quality websites which  accepts payments in Bitcoin. This is because its customers come from every country on the planet including some who are not able to make payments through the traditional banking sector.

Not only is WordPress diversifying its payment processing risk, it is also diversifying its liquidity risk by holding funds in a currency that is not linked to the conventional financial system. To me this sounds like sensible risk diversification.

For various reasons many individuals and companies are sitting on cash piles that, be it temporary, prior to buying a new house, or perhaps as a normal part of the businesses cash flow.  Most people’s pre-requisite for short term cash deposits is that they are readily available, easily transferrable into multiple currencies, and generally hold their value.

We are seeing an increase in individual’s buying gold with us at The Real Asset Co. for exactly this reason. Diversification from traditional bank deposits into a liquid asset that generally holds its value.

Wider integration with payment processors is the next step that already seems underway. I hope this will lead to a healthy balance of choice between traditional  versus alternative currencies and payment systems.