Nothing Neo Under the Sun.


There’s just no shaking those pesky middlemen is there? Couple of days ago Neo & Bee opened the doors to its flagship branch in Cyprus, having already caused quite a stir on the island with an IPO in September of last year, followed by a highly publicised teaser campaign which has had many of the island’s inhabitants asking “Who is Neo?” The rhetoric surrounding this new venture has been chock-full of all the usual marketing clichés designed to gently tug at the fears of a population in the throes of the worst economic crisis since the island was invaded in 1974.

So what is Neo? Well, Neo is (sort of) a bank, (sort of) a payment processor, an investment fund (of sorts) and (sort of) a bitcoin exchange. But for all intents and purposes it is putting itself out there as a revolutionary new bank built on the smouldering wreckage of the system it intends to replace. Everything down to its name has been contrived to make it stand out to a new crowd of “savvy” customers and to capitalise on the interest in bitcoin since last year’s bail-in. But don’t just take my word for it, their own LMB Holdings IPO prospectus does a far better job of conveying the message:

“With many Cypriots distrustful of traditional banks, Neo will be branded as transparent, futuristic, innovative, and modern. Neo empowers its customers to take control of their money. Besides advertising, these ideals will be communicated through:

  • The first bank branch has a 30-foot glass front, showing transparency and openness. The interior will be stylish, contemporary and ultra-modern.
  • All branches will be designed and decorated to differentiate themselves from the appearance of the traditional banks of which Cypriots are familiar with and skeptical of [sic].”

The idea? Get people to eschew all those nasty banks which can’t be trusted anymore, and deposit their euros in accounts denominated in bitcoins. But what about all that yukky volatility I’ve been hearing about? No problem, you can have your bitcoin deposits pegged to the euro, so if bitcoin tanks you still have the euros you deposited.

Page 6 of their prospectus, which to their credit is surprisingly forthcoming, states the following:

“Customer deposits are held in full reserve, in Bitcoin. We do not use customer deposits for speculation.”

Page 5 states:

“We project roughly 98% of initial customers will request Euro-pegged accounts, giving them the same experience as banking Euros with traditional banks but with the added confidence of knowing their deposits are held in full reserve in Bitcoin… The basis for our estimate that 98% of customers will use Euro-pegged accounts has been taken from our market research survey responses. We are in a country where people have recently lost a significant portion of their deposits, and they are now extremely risk-averse.”

Page 8-9:

“Initially, we will be adding large amounts of liquidity to the open markets which will drive increases in BTCEUR price level. As these accounts are pegged to the Euro, profits resulting from increases in BTCEUR price on these customers’ deposits will be retained by Neo, and is expected to be our primary source of income in the short term… The sum of all MtGox ask orders is roughly 47,000 BTC. If the market remains constant until February of 2014 [who knew!], and no new orders are added, we could consume all MtGox liquidity in just over two weeks. Because of this, we expect strong price increases upon accepting deposits. The “Snowball” effect, where other traders see a bullish market and buy into it, is likely to exacerbate our purchases’ effects.”

So essentially what we’re dealing with here is a bitcoin fund masquerading as a bank, acting as middleman between people who don’t understand cryptocurrencies and the market. They won’t be speculating with your deposits… because your deposits are the speculation. That’s all well and good and perfectly above board, but not when you take on the risk of an investor while thinking you’re dealing with some new type of bank which is supposedly safer than the old kind. All this while they pocket the spoils of a market your hard-earned euros helped inflate. It’s front-running without the front. It’s pump and dump without the need to dump if the market behaves itself and their risk analysts don’t make a balls up of it. As dilapidated as the current system is, deposits of up to €100,000 are still supposedly guaranteed by the EU, which is more than Neo can claim.

The fact the Neo’s business will be primarily derived from traditional depositors rather than bitcoin enthusiasts should give lie to the myth that it’s some bold step forward for cryptocurrencies into bricks and mortar banking, as is being reported elsewhere. Holding up the B like it’s some sort of gang sign doesn’t give you a pass in my books, and members of the cryptocurrency movement would do well to be a touch more discriminating when companies use the B-word.

Cyprus and bitcoin, it should be noted, are inextricably connected. As news of the unprecedented bail-in of the island’s deposits spread like wildfire last March, interest in bitcoin exploded worldwide. In other debt-ridden EU nations like Spain and Italy, citizens, presumably fearing similar actions from the Troika on their own home turf, became evermore interested in alternatives to fiat money which would allow them to get out of euros and into something a little safer. In the wake of the Cyprus bail-in bitcoin surged to all-time highs, peaking at around $260 per BTC at the beginning of April. What was merely nerd-money at the time of the bail-in, suddenly found its first real-world utility on an international scale. The fact that even with MtGox withdrawals still suspended due to improper transaction malleability protocols, BTC is still trading at more than twice its highs after the Cypriot bail-in, is a testament to the cryptocurrency’s resilience.

Heaven forbid that a feckless, apathetic English major should be dishing out financial advice, but if I were one of those countless Cypriots who will no-doubt enter Neo’s uber-modern flagship and peg their deposits to the euro, I’d take some time to research what bitcoin is, how it works, cut the middleman out and take true control of my finances by setting up my own bitcoin wallet with a dependable provider. I’d then take a fraction of the money I would have deposited in Neo & Bee, and purchase bitcoins from a reputable exchange, taking full advantage of the imminent surge that will ensue if Neo does manage to generate even a portion of the market activity that it’s forecasting, and holding on to them for better or worse even if it doesn’t, or until such time that they actually prove useful. But then I’m all liberal artsy and meta.

I post this as a crypro-convert who is invested in bitcoin both ideologically and financially (full disclosure: more ideologically than financially, but as financially as my current means will allow). Bitcoin’s emancipatory ethos is the most precious aspect of the cryptocurrency phenomenon, it is what will keep it alive despite the growing pains, the fiascos and debacles, the negative press and the attempts to rein it in. It was supposed to do away with middlemen and not intended to replicate our existing financial structures.

All that said, there’s a lot that’s intriguing about Neo. The Bee payment network looks as though it could be an interesting challenge to the hegemony JCC has on the island. The increased visibility of bitcoin, which Neo is investing heavily to promote, could be a vital push into the mainstream for the currency. That’s if it doesn’t go belly up, which will undoubtedly have an enormously detrimental effect for both the island and bitcoin’s reputation. Had Neo been tailored for budding cryptos like myself, I’d’ve been the first in line today, but the primary driver behind the company’s forecasted earnings (set to be profitable by next month according to the prospectus) seems like a bit of a bitcoin grab, to me at least. Decide for yourselves.

Bitcoin wins…