​​'Banking' your BTC: The most secure way to buy, hold and grow BTC in the world

A lot has been written about Bitcoin's new all-time highs, and we've been riding a wave of excitement as it reaches unprecedented levels. Now, two significant questions are on everyone's mind.

The first is security: "My BTC has a much larger value today in terms of USD (around 60% more than it did at the beginning of the year so far). Where should I store or hold my Bitcoin to keep it safe?"

And the second is growing and using it: “I’d like to own some Bitcoin. What is the best and safest method to acquire BTC that allows for growth and for me to use in different ways if I want to?”

From these simple questions, there are, of course, many more questions that arise.

Obviously, many platforms around the world pitch themselves as the safest way to gain access to BTC. They will all say that they have championed the principles of Bitcoin, recommending their platforms with eye-catching websites. Then, you'll find a few Twitter influencers who have said they are using those platforms, making them even more appealing. It all sounds very attractive, but let's look at a few core factors you should consider and be aware of. 

Xapo Bank: The distinguishing factors

1. Long term history

We have been talking about the potential of Bitcoin and explaining this to people for a long, long time — over a decade, in fact, with many renowned publications citing us for our vision. Few people might remember our principal and Chairman, Wences Casares, explaining Bitcoin as a new gold standard at the History of Money in 2015. It might have sounded speculative to many people back then, but Wences also described Bitcoin as being like the internet before internet browsers existed, in The Wall Street Journal in 2014. Our message has been consistently delivered for many years, and it hasn't changed or stopped. 

Let's look beyond those interviews to international and academic pieces. While there is now heavy crypto weighting at the World Economic Forum at Davos, I would challenge anyone to find interviews at Davos in 2015 around the values of BTC. 

Our case for a small allocation of 1% of your portfolio to Bitcoin in 2019 might not have been read by everyone interested in the space today, but that has always been our view. Go one step beyond that, and you can see our messages that 'Eventually Banks have to use Bitcoin', also from the early days of 2015. We are not new to this space and have built the 'Fort Knox of Bitcoin' for the better part of a decade, as reported by Fortune in February 2023.

Summary

Xapo Bank's distinguishing factors include a long-term commitment to Bitcoin, consistent advocacy since 2015, and early predictions of its financial significance, positioning itself as the "Fort Knox of Bitcoin" since 2014.

2. A regulated BTC custodian and bank offering simple, secure, and well-capitalised solutions

That is all an interesting story and history, but what makes the difference today? Besides the top-tier security we're known for, what makes Xapo Bank a 'safe' place to store your BTC? I would say that a few other points make the offering the most secure in the world. 

Firstly, Xapo VASP (the legal entity that custodies your Bitcoin) is a seriously regulated custodian, and I'll explain what that means below. The second is that Xapo VASP is incredibly well-capitalised. In December 2023, we had a capital ratio of 396%, with the capital of the business sitting at around USD 65 million. That is almost four times the capital we are required to hold, ensuring customer assets are held securely, and the company is safe to deal with any potential scenario. 

Aside from that—and this is a hugely distinguishing factor—the Xapo Bank app allows you not only to hold your BTC in a fully regulated VASP account but also instantly sell BTC and hold the proceeds in your regulated Xapo Bank USD account. All with just the tap of a button. 

This means that any BTC you sell is immediately held in your own deposit-guaranteed bank account and not on the balance sheet of an exchange that may not be regulated at all, or at least not regulated to act as a custodian of your assets — something that we have written about in the past. 

Why should this matter to you? Well, you can read the Financial Times article about the largest exchange in the world, Binance.com, having 'bowed to pressure from customers' who want to hold their assets with an independent custodian. This only highlights the unease over customers custodying their assets on the exchange. You can also see the group's announcements around 'triparty agreements' allowing only institutional customers to hold their collateral with an external banking partner for security. But what about the ordinary retail customer? Xapo Bank is an integrated solution that enables people to hold their USD and their BTC as securely as possible. 

Summary

Xapo Bank stands out for its robust security as a highly regulated and well-capitalised custodian. Its unique proposition enables customers to securely hold both BTC and USD within a fully regulated banking environment, offering unparalleled safety for retail clients.

3. Why Xapo Bank gives your US Dollars more agility than ever before

USD balances at Xapo Bank offer immediate flexibility, ensuring swift deposits from your Savings account where they earn competitive annual interest paid out to you daily. There are also instant withdrawals that don't come with penalties or waiting periods either, so you have access to funds whenever you want or need them. Additionally, these balances are protected under the deposit guarantee scheme, setting Xapo Bank apart from exchanges or e-money businesses such as Revolut in the UK.

It is also very interesting in a world where being able to convert crypto into traditional currency within the same banking environment faces increasing restrictions. This is something we wrote about last year here. 

While others continue to make this more and more difficult, we have built the opposite to integrate your Xapo Bank BTC and USD accounts directly. Additionally, our platform includes broader stablecoin integration rails. This allows you to send and receive USDC and USDT directly from your bank USD account with instant conversions, effectively serving as a bridge between the security of a bank account and the expansive world of blockchain.

A Xapo Bank USD account also allows you direct access to make payments and transactions in USD (via ACH and Fedwire), EUR (via SEPA) GBP (via the Faster Payments System). You can also spend your money using a global Xapo Bank card with no added FX rates, wherever you are in the world. 

This all sounds very positive, but there are also questions that I have often heard from people in the crypto space when they talk about banking services and providers. This is a typical question we might expect to hear: ‘Why is it safe to hold money on your Xapo Bank account? I've heard about Silicon Valley Bank and the issues with different banks in 2023. What makes this different?'

Well, there are a few very important differences. Xapo Bank is effectively a 'narrow bank' in that we do not engage in any lending activity with our customers' deposits and only provide savings and current accounts to our members. This is completely different from what is commonly known as 'fractional reserve' banking. 

Most modern banks engage in fractional reserve banking, which requires them to keep only a 'fraction' of their depositors' money in reserve, with the rest being free to be lent out. It allows for 'credit creation', allowing banks to set aside only what they are required to set aside and to lend out the remainder. Of course, the reserves are meant to ensure that the bank has the liquidity to meet a reasonable amount of withdrawal demands, but this can also create issues, as it has done with some banks recently when they cannot meet those demands. 

We also have zero debt, and from a capital perspective, for those of you who are a little more technical, we have (as of December 2023) a Core Equity Tier 1 Capital Ratio—which measures a bank's financial strength—of 132.8% (the requirement for a Bank would be around 7%). We have a Liquidity Coverage Ratio (LCR), a standard that requires a Bank to cover their net cash outflows during a 30-day stress period of 3,237.5% (the requirement under European Law would be 100%). In addition, we also have a Net Stable Funding Ratio, a long-term liquidity measure to promote more stable and sustainable funding structures in the banking sector, of 311.6% (the requirements under European Law would be 100%). In addition, Xapo Bank has a separate Guarantee from its Holding entity, which holds a large part of the balance recorded on Bitcointreasuries of circa USD 2.8 billion worth of BTC at the time of writing.

Summary

'Xapo Bank offers a unique banking solution with immediate placement of USD balances in a Savings account currently earning competitive annual interest paid out daily. It is also protected by a deposit guarantee scheme, has seamless integration for crypto conversions, and supports transactions in multiple currencies without any added margins. Distinguished by its narrow banking model without lending activities, Xapo Bank maintains exceptional financial strength, liquidity, and stability ratios, far exceeding regulatory requirements, ensuring unparalleled safety and reliability for its members' funds.'

4. Regulation and governance. What difference does this make to the everyday user?

When somebody chooses to buy BTC (or any crypto asset), they typically think of the asset to which they want to gain exposure. That can be from a value perspective or a functionality perspective. Where you gain access to that asset is a critical point, something I have also written about.

When I met Wences in 2015 as the external lawyer to Xapo Bank, he told me that regulation would happen and that he wanted to support the development of the first regulatory framework for virtual asset activity. This was four years before the Financial Action Task Force (FATF) provided their recommendations to the world to develop regulatory standards for Virtual Asset Service Providers. This is what we did in Gibraltar when I approached the government to develop this. We have learnt a lot in that process and are setting the standard for how regulated businesses should operate in this space. 

We have also seen in recent times the dangers of a lack of regulation and the fall of large platforms like FTX. Unlike others, we comply with standards, rules and regulations imposed by a reputable regulator around the 'Protection of Client Assets'. They require us to have effective arrangements for that protection, take precautions, and establish corporate controls to protect those assets. We also have a balance sheet of ~26,000 BTC that we use as an additional first loss protection layer for our customers to ensure their assets are ultra-safe. 

This simply does not exist with any other VASP in the world. Many crypto exchanges operate in regulated frameworks that only impose standards around AML and compliance but no standards or requirements around core regulatory principles. This is a huge distinguishing factor which differentiates us from the rest. 

The same can be said of corporate governance and management of the business and consumer protection laws by which we are bound. You can see the makeup of our board here to get a sense of how seriously we take the governance of Xapo Bank and Xapo VASP. This is, of course, very different to placing valuable assets within a structure that is managed by inexperienced or unqualified individuals with potentially unknown track records. 

Would I expect everyone who wants to buy BTC to conduct forensic due diligence on their chosen provider? Potentially not, but I would urge people to try to understand their counterparty and something around the business they trust to hold and store their valuable assets. 

Summary

Xapo Bank distinguishes itself by proactively embracing regulation well before industry standards were set. We also offer unparalleled safety with robust client asset protection measures, a significant first loss protection layer with a balance sheet of ~26,000 BTC, and adherence to high governance standards. This sets it apart from other VASPs and ensures client assets are managed with utmost security and expertise.

5. Earn Bitcoin interest, at no risk

We continue to reward our members by paying interest on the BTC balances in their Savings accounts. The interest rate is variable, but what's truly remarkable is that this interest accrues without needing to touch or deploy your BTC. And, as we've mentioned before, your assets are securely stored in an account completely separate from Xapo Bank's own funds, offering you an added layer of security and peace of mind.

We deploy and lend our own BTC at our own risk to pay our members' interest in BTC. If you have believed in the value proposition of Bitcoin for the last few years, receiving 0.2 to 1.0% interest on your BTC over that period is quite material. 

However, suppose you are looking to deploy your BTC on highly leveraged platforms, to lend on a high-risk and uncollateralised basis, or to allow a platform to deploy your assets at a much higher risk to you and a potentially higher return. In that case, Xapo Bank is not for you. 

We provide a mechanism to bank your BTC in a simple way, to earn interest and securely grow your savings, and to have your BTC integrated with your own low-risk USD bank account if you choose to sell it. 

Summary

Xapo Bank pays interest on BTC savings through secure, low-risk methods without touching your assets. Ideal for those preferring safety over high returns from risky, leveraged platforms.

6. Bitcoin superpowers

You can securely hold your BTC in a regulated banking environment or convert it into funds for your USD Savings account. Imagine earning competitive annual interest with daily payouts, turning the value of your BTC into a passport for purchasing equities and tapping into the US market. Moreover, with your funded USD account, you can effortlessly make purchases on your global card at spot FX rates, enabling transactions in USD, EUR, and GBP, as well as conducting international stablecoin-denominated transactions directly from your bank account. It’s about bringing flexibility and intelligence to managing your assets.

Do we offer the ability to trade hundreds of assets on open crypto markets? No, and we do not want to. Do we offer zero-cost ways to buy and sell NFTs on unregulated markets? No, and we won't do this. Do we think that holding high-value assets in self-hosted wallets or storing cash underneath your bed is the most secure way to protect and grow your wealth? No, we do not. 

Do we think providing a simple, trusted, secure, longstanding, regulated banking offering with modern blockchain payment integrations that enable people to hold, store, grow, protect, and 'bank' their BTC is the right thing to do? Yes, we do.