Nicolas Louvet, CEO, Coinhouse explores the idea of a crypto bank, discusses the steps the company is taking to apply for a banking licence in France and Luxembourg, and argues that while a cryptocurrency bank is feasible, they can never operate on a global level because of state intervention, regulatory requirements, and taxation.
Coinhouse, a French digital asset platform has been offering cryptocurrency management and transaction services since 2015. Since their spin-out from Ledger in 2017, they have transitioned into a custodian for individuals and institutions who wish to acquire and secure their digital assets, as they have been providing users the capability to buy, hold and sell Bitcoins, Ethereums and more than 40 cryptoassets.
They are the first PSAN (Prestataires de Services sur Actifs Numériques) registered with the Autorité des Marchés Financiers. This allows them to legally safekeep, purchase and sell digital assets in legal tender.
Coinhouse is also on the process of procuring a banking license that will allow them to operate as the world’s first crypto bank. They have more than 500,000 clients in Europe and offer immediate access to many crypto assets.
These are the key points discussed in the interview:
The following is the edited transcript:
Emmanuel Daniel (ED): I'm very, very pleased to be able to speak with you today. Nicolas Louvet, chief executive of Coinhouse, which might well be described as Europe's first cryptocurrency platform, that also has a banking licence; would I be correct to say that?
Nicolas Louvet (NL): It’s mostly true. Maybe the difference is we don't have a banking licence because we are not a bank. We are licenced as a digital asset service provider, which is sometime called virtual asset service provider (VASP). Our licence is only focused on digital assets. For all the activities that we are doing, which are crypto to fiat, fiat to crypto, crypto to crypto, and the custody of crypto on behalf of customers. We don't have yet a banking licence, but we are applying for one that we should receive during the year. That will help us to converge from the crypto investment platform to a kind of crypto banking platform, mixing both the ability to manipulate fiat currencies but also crypto digital assets.
Coinhouse applies for a banking license
ED: So you have two licences, one from the French Financial Markets Authority, right? That's the Autorité des Marchés Financiers. and another one from Luxembourg, what's the licence that you have in Luxembourg?
NL: The same, in fact, that's exactly the same as in France. We operate two companies as digital asset service providers. One is Coinhouse, which is the main company, and the other one is a sister company of Coinhouse called Coinhouse Custody Services. And both are registered under the Luxembourg and the French regulation. We've obtained the French regulation first, back in March 2020. And we just announced that we've been registered by the CSSF, which is the equivalent of the French AMF, but for Luxembourg. And that's very good because it's going to help us to access the institutional market in Luxembourg and the fund management market as well.
ED: Would you then call Coinhouse a platform, or basically a custodian service? And give me a sense of the relationship between Coinhouse and traditional banks: onboarding fiat currency, onboarding customers, the trouble that you have to go through right now.
NL: Right now, we are already a crypto investment platform, which means that first of all, as most as a fintech company, which could be neo bank or other type of company, we have to make sure that our customers have a full KYC. And, and so we operate a digital onboarding. We don't have physical onboarding, which is meeting people and so on.
There is a process using technology that has been developed in-house and also used by third party providers in order to help people create an account, which is going to be validated and follows the rules that applies to us from an AML perspective. Digitally, it is something between six and eight minutes. In six to eight minutes if you got your mobile phone. If you've got your ID card or your passport, then you will be very easily validated and you will be able to start making an investment.
While we are not a bank, we sell cryptocurrencies. We are the simplest way and the most secure way to get access to cryptocurrencies in France and in most of the European countries, which means that you can pay by debit card. So, you use your Visa or MasterCard. Then after, you will get your cryptocurrency very fast on our platform. It takes less than one minute. Then you can do whatever you want, you can sell them, you can swap your crypto in another type of crypto.
For instance, you buy bitcoin and then after you want to exchange as bitcoin in ETH on Solana, you can do it on the platform. You can also withdraw your bitcoin and send your bitcoin to another wallet than the Coinhouse wallet. Because one of the things that comes with the platform is we offer the custody of all the crypto for all our customers.
We offer you the capacity to secure your crypto very easily, it's for free. You can also deposit cryptos that you have not bought at Coinhouse. So you went to another platform and then you can deposit your crypto, and we will keep them safely in a cold storage solution for free. That's the distribution, you can buy credit cards, but you can also buy bank transfer. We don't offer a bank account right now, this is what we are going to offer with the banking licence we are applying for. So, right now when you make a bank transfer, it means that you are going to buy crypto immediately. You can withdraw, you can send us, for instance, using your bank transfer system, something like EUR 5000, or EUR 10,000, or $100,000, and then after you will be able to buy whatever you want, and use your crypto and custody your crypto with Coinhouse. That's the way we differentiate. We offer a lot of services to our clients which are either companies, businesses, or retail. In fact our retail investors are premium customers, like private banking customers. The customers that invest quite a lot of money with us. We really focus on high value customers on our platform.
ED: I am a crypto investor. You've had a number of years to build your market share. Give me a sense of how big is the business in terms of assets under management. How many customers, a kind of a profile, and who would you compare yourselves as in terms of market share with other players in Europe?
NL: I will answer your question in two parts. First, I will answer the question about the figures. We've got something like half a million customers so, 500,000. We generated last year, volume of transaction of a half of a billion, so EUR 500 million. And 1/3 of our customers are businesses, 40% are premium customers, so private banking people. And as for the rest, more classical retail investors. We have been funding in 2014. But what was funding in 2014 was the company that became Ledger. Because I didn't start the company. I was one of the early investors. I was a pre-seed investor in Ledger. So, to make a long story short, in 2014, there was a company in France, for which I was one of the investor. And this company was led by Eric Larchevêque which was the original founder and CEO of Ledger.
I guess you all know what Ledger is, the Ledger Nano X. In fact, this company started the business in 2014 that was called the La Maison Du Bitcoin. And the idea was, there was nothing in France and almost nothing in Europe like, a incubator for crypto, for blockchain technology. A physical place where you are able to meet people, meet entrepreneurs, start businesses, get advice around crypto, and blockchain technology. So we started this thing, this kind of incubator. A few months after the incubator was started, Eric met people who had the idea of creating the Ledger Wallet. And so, we decided at this time to merge, that means only Bitcoin, with the project of the two guys. And Ledger was founded. Ledger came from the idea of Eric, putting this amazing incubator on blockchain and crypto technologies in France in 2014, and two guys, one, who had the knowledge about the Microchip Technology that is used in the Ledger to secure your private keys. And the other one who decided about the form factor that you need the device to secure your wallet. And we merged and created Ledger. And as part of Ledger, the activity to buy and sell crypto was created. Because at this time in 2014, 2015, it was not very easy for people to get access to crypto. Where would you buy Bitcoin? Some of the exchanges were not easy to access, didn't have bank accounts in Europe or in some places.
Then the idea was to turn the activity of La Maison Du Bitcoin as a broker-dealer. So basically, it is a place where you buy Bitcoin. but you buy Bitcoin from La Maison Du Bitcoin, which is now Coinhouse, and Coinhouse buys bitcoin from marketplaces, notably Kraken. So, it's not a marketplace model.
We are not an exchange, and we've never been an exchange. We've always worked with exchanges, and we work on behalf of the customer on the exchange, that was the first period from 2014 to 2017.
And we do not compete with exchanges. We compete more with Coinbase, as both have the same approach. They're both an exchange, with Coinbase Pro or Coinbase Prime. And so also and in the same type of business model as IRF, which is based on their mobile app.
Kraken is not a competitor because it is an exchange. Crypto.com is a little bit more of a competitor of Coinhouse, as Revolut might be also or Ito in Europe are also some competitors, but we do not fulfil the same approach.
First of all, these companies are not regulated in France, which means that they are illegally doing business in France. If they want to target directly the French customer, they are not allowed to talk to French customers directly. The French customer can go on online if you want because, with the internet, you can always use any type of service, people are not going to block you. But Coinbase cannot make direct marketing approach to the French people. They won't be able to operate in all of Europe, if they are not regulated in Europe. Same for Binance, Crypto.com. We are regulated.
The second point, we have a French bank. If you use Coinbase, if you use Crypto.com, and if you want to send Euros, or if you want to receive euros after having sold your crypto, you're not going to receive yours from a European bank. We have Societe Generale as our bank, which means that for companies, for some customers, this is very important. And it can also help you not to be pointed out by the tax administration in France, because if you receive a huge amount of money from a platform which is not regulated, your bank is going to declare a suspicious activity. So then we start talking about who's regulated and who's not regulated. So that's very important.
Last point, we have a customer service line, try to do it with Binance, they don’t have phone numbers, with Coinbase. If you are a company, if you are a premium investor willing to invest EUR 100,000, you want somebody that you can trust. You can call AMF, you can really try to find us and we are based in Paris with physical presence. If we do bad behaviour with customers, I'm going to be sued. I'm going to get fined by the regulator. That's the way it works with banks. At one point, the regulation will change our world, and the positioning right now of most of the platforms, which are exchanges, is not going to survive if they won't be able to get regulated. It’s not easy to be regulated. So we can't compare with the others.
ED: Given your story, you're a known quantity in Paris. The regulators know who you are, they know where to find you. But would you say that another part of the story is that you are subject to a number of fee arrangements which makes you an expensive custodian of digital assets? You're subject to gas fees, transaction fees, you actually absorb a number of fee elements which should then pass on to customers. Would that be something that a detractor might say about you?
NL: Well, no. First of all, you're using blockchain technology. Everyone has to pay mining fees, or gas fees. If you have a ledger wallet, which means you are your own custodian, and you want to send me a Bitcoin, which I will accept, you will pay your mining fees anyway, because otherwise, the transaction won't work. Because this is the way the blockchain technology works, you have to pay the system in order for the system to be secure. On our side, if you want to withdraw your crypto, we charge you also the mining fees as any platform. We do all operate in the same way, and I strongly encourage you to compare the cost by spending EUR 1000 on each platform.
And then you will be able to compare and you will be very surprised to see that what others charge on their platforms is what our platform charges you also. All platforms charge you anyway. That's one answer to your question. We don't charge any custody fees for customers. So when you buy crypto from Coinhouse, you have to pay transaction fees, as it is a case for Crypto.com for Bitflyer, Kraken, Coinbase and others. We charge you commission fees on each transaction but the custody of your crypto which cost us a lot of money is for free. Because we charge you money on the transaction, we offer you the custody even if it cost us some money. For our dedicated customers we are using a very sophisticated custodian approach, which is the approach of Coinhouse Custody Services. Then we target large company or investment fund, and there is no other revenue than the custody and since I don't work for nothing, we charge a custody fees as Copper Fireblocks, and Bitgo are doing anyway. This is the business of those companies anyway and they are all very expensive, and we are spending less than they are.
ED: Right. It's amazing this whole space is evolving and there are several options. You can choose to take the technology route, you can choose to take the custodian route, you can choose to take the fund manager route, the banking route. So now, it seems that you're about to take the banking route that seems to be the most attractive to you. Why?
How digital assets will revolutionise the financial industry
NL: I strongly believe that the banking and the financial industry is going to be hugely impacted by the blockchain technology. I strongly believe that the way banks and financial market institutions work today is going to be impacted as the car manufacturer working with oil, are going to change their way of building cars. Because we need to go into electric vehicles, and hydrogen vehicles, so they have to change the way they manufacture cars, distribute energies, and repair cars, and so on.
A lot of their technology environments are going to change, and that’s the same for the banking and the financial institution. Why? Because blockchain technology brings a huge disruption in the environment. It's a new way of manipulating funds, you need far less intermediaries to check and monitor transactions, and to make sure that there is no fake information in the way of registering a transaction, from payments, to financial markets to financing, and so on.
You start to see this evolution, not only with Bitcoin, but also with Defi, with stable coins, with NFTs, with security tokens, and so on. I strongly believe that exactly like the internet changed our way to communicate 25 years ago, like the electric vehicles movement will change the car manufacturer, the blockchain in general, not only the Bitcoin, but just the technology, is going to change the banking and the financial markets.
And so, the incumbent, the traditional banks, either Chinese, American and French, from all over the world, will have huge difficulties to absorb those technologies. Because this is not the way they work and this is not to their understanding. This is totally different from a compliance, from a technology, from a customer relationship, from a risk point of view. You need new players exactly like Google took a huge role in our industry. That was not the case 30 years ago, they want the same for Tesla. Tesla is having a huge impact in the car industry, and Tesla was created recently. So, the crypto finance world will emerge and will become big. It's going to take probably 10 years, but this is going to be big. And this is exactly where a company like Coinhouse can move into.
We want to be a crypto banking platform, we want to be a crypto bank. So, crypto banks, manipulating crypto and making also banking services but based on blockchain technology. But since the fiat currencies will still remain a huge part of our way to manipulate funds in the future, we also need to be licenced as a bank. Because otherwise, a pure crypto platform won't be able to take the lead to this transformation in the market. You need to be at the convergence of the fiat and crypto technology. Because that's exactly what a crypto bank i. And that's why we want to be a crypto bank. And we will be the leader in Europe.
ED: What are questions that the regulators are asking you right now. Are you going through the crypto bank application process right now?
NL: Well, I'm probably one of the only guys in the world using the word crypto bank. Some people in Switzerland and in Germany are using it. But if you talk to the Coinbase CEO, I'm sure he’s not going to talk to you about crypto bank. So, I am pushing the world saying that this is in fact, a new business. None of the regulators today is writing what a crypto bank is because they don't know what it is. But this is the way innovation works. So today there is no crypto bank licence, but tomorrow there will be. Today what we have is a banking licence on one side and crypto licence on the other side. So we've got the crypto licence, we are going to apply for the banking licence, one that suits our business in Europe.
ED: But is a crypto licence expensive? Now, a crypto bank licence is expensive because it comes with a capital charge. It has liquidity requirements, all the things that you need to run a bank. So, it is an expensive route.
NL: It's going to be very expensive. Right now, at least in France, it's all mostly focused on the anti-money laundering aspect, and the fight against terrorism. They mostly focused all the energies on KYC, AML, fraud and risk management. So it's costly, because it requires you to put some technology, some scoring, you need to do KYC starting from zero euros, you need to understand the risk, you need to be able to force the asset of your customer if the government asks you to do it. You need to make sure that if you have a politically exposed person, you need to understand it. And to make some suspicious declaration. You have a lot of processes to put in place. It cost money, and it's very long for us because we have been the first one to talk to regulators, and talk to the French governments in 2018, before the regulation started. It took us three months to be regulated, but the others it took them between nine months, and more than one year. All the people that started to apply for regulation in 2022, are still not regulated. So it could be complex. And it requires to change a lot of processes, a lot of stuff. This is just the beginning, because of what's coming with the European regulation. Your right Emmanuel, we will need in that case to have enough capital for capital charges, enough liquidity, we need an insurance, we need strong cyber security and risk assessment. I mean a lot a lot of processes from information technology, from insurance, also the way we talk to customers, you need to make sure that you give a fair information to customers all the time to put in place some relationship exactly like it is a case in MiFID, which is European protection of financial markets. And this is very close to the MiFID regulation. So it's going to cost us a lot.
ED: So being a non-European, one of the interesting features of European regulation, which I want to test with you, is that because both Europe and the UK have been taking an open banking approach. You just said MiFID, but also in PSD2, as well as open banking. Now, all these directions, do they make it easier somewhat for a European to apply for a crypto licence? Because increasingly, the regulators themselves are becoming asset neutral or asset agnostic, that crypto is going to be just one type of asset in a European setting. Do you sense that?
NL: Exactly, I strongly agree with your assessment. They will be agnostic to the technology and they will try to make sure that we follow the same type of rules. Necessarily, you will have a sandbox period because this is innovation. So for some when we talk about payments and PSD2 and something. For payments, the technology is already in place, even for open banking. This is an add-on on what exists and it's not easy, but it is not as disruptive as blockchain. So in our case, you will get a testing period and adaptation period. And there are a lot of situations which appear in blockchain technology, that are still not discussed today, or not considered. If you talk about NFTs, non fungible tokens, about security tokens in some aspect, the decentralised finance. Providers and technologies are still not really discussed at the European level, and the regulators, the governments, are not ready yet, because they still need to understand where the market is. It’s very early, and we are in the early stage phase of the market development.
ED: Now you described the origins, with Ledger and La Maison Du Bitcoin. Do you personally have a conglomerate mindset? Which is to get the banking licence and then build everything else around it?
NL: I guess probably yes. It's my background. As before, I became the CEO of Coinhouse, and we bought the company from Ledger and finance the company with the two global global ventures, and we're raising near $20 million. I was a venture capital investor, I spent 15 years working in large, private equity and VC firms in France, I've been financing companies, developing businesses all over the world, mostly in the software-as-a-service and technology space. And I've seen companies also expanding a lot, doing a lot of M&A (mergers and acquisitions), acquiring other companies to become bigger, and offering larger services to their customers. So I guess I have this in my mindset.
Digital asset platforms will not become global
ED: Now, in in terms of competition that will come, where do you think that your competition will likely come from, assuming that you haven't got your banking licences yet? Like right now, is it the foreign players? Is it another exchange? Is it a trading house which has got access to liquidity pools, for example, which can help them to pass on some of the transaction cost savings to the customers, or find the best price or something like that? How's that whole space evolving? How do you see your advantage, your strategic advantage in relative to whatever competition might be coming on stream now?
NL: Well, first of all, I do believe in a regional market and not in a global market. So I don't believe that you will find a global player for this business. We are talking about finance, and financial services. So usually, governments, they want to control it, or at least to understand what's going on. Because this is related to taxes and to money laundering, to the ability to control where the money's going in the market. It's also a way to finance economy. So I don't believe that you will have a winner takes all solution, like it might have been the case in with one global player being the crypto bank of everyone in the world. Probably people will fight against this and government will probably even physically fight against it with an army. Because don't forget that the country is an army, a currency, and tax system. That's where we must define a country. So if you don't have a way to take tax, and if they don't have a currency, they will probably use the Army.
So you will find players in Asia and probably China…
ED: will be adding another market.
NL: And I guess the US will play its role, and try to put the spy everywhere in the world. So, we have to be careful. And in Europe, you have a clear role. Then after this, financial banks will clearly at one point be able to come back in this environment. So they will either require a company or be able to enter the game, they will definitely. Clearly US banks are as usual, very active; and if you look at JP Morgan, they just changed their mind. Three years ago the CEO of JP Morgan was saying that anyone owning Bitcoin would be fired, and in fact, he was having Bitcoin on his own. So, the guy is a little bit weird, but right now they're offering Bitcoin to the clients. So it can show everyone that people can change their mind. Goldman Sachs is doing a lot of stuff, a lot of funds and ETFs. Also the CMEs market in Chicago is getting momentum, Coinbase is a very strong player.
So those players, from the traditional and some players like Coinbase, will definitely play a role. I certainly hope that the European and some other player in the world will definitely emerge, and will react in order to not lose our sovereignty. And I strongly believe I will play a role in this game. But I do believe also, that you have lost players right now such as by Binance, which is probably trying to find their way in the world.
ED: Maybe two questions, very quickly. One, tell me a little bit about the investors that you've attracted, the questions they've asked, what are they mostly interested in, who are your key investors right now? And the second is, talk to me a little bit about institutional investors in crypto in Europe. How do you think that will evolve?
NL: Yeah. So we've got a bunch of US, European, and Asian investors. So Toolbar is incorporated in Singapore and partners in more than 40 countries, more than 40 cities, in the world. From the US to Russia, Middle East and APAC region. So they're very strong and very global. We've also got a small family of VCs, we've got the sovereign fund of Luxembourg investing in our companies. We've got ConsenSys, which is one of the leaders in developing a solution on the Ethereum blockchain. And we've got French VCs as well.
Regarding the institutional investors, Europe is not leading the race in this situation, as it might be the case in the US or maybe in some countries in Asia. I will say Europe, excluding Switzerland, which is a different market. So Switzerland is active anywhere in the market, and much more active than any other countries in Europe. But I think that Luxembourg wants to do more and wants to accelerate, and I encourage the French government to do more also in the space. So the institutional market is still trying to understand and feel if this is the right timing to enter. I do believe that 2022 will probably accelerate their interest, and make a big move. We see also large companies entering the market for using crypto as a payment solution, or for using NFTs. They're trying to do something in the metaverse business, which at the end is related to crypto business. So they need custodians, regulators, solutions, they need conversions, crypto to fiat, or crypto to crypto, and so they need people like us.
How the digital asset market will evolve
ED: Last question, has the volatility in the market been good or bad for you?
NL: Well, it's good. So the volatility is showing opportunities to investors. If you've got low volatility, people are wondering what's going on, and they might wait and see, which is the worst situation in our case. If you've got volatility in the market, which is always decreasing, this is also very bad. Because then people start to be dispirited about the market, and they want to wait, but they want to wait for six months, one year before coming back. Because they don't believe this is the right time to enter the market. That was really the case in 2018, which was a very tough from this point of view.
ED: Right? And how do you think the market will evolve now, given that it's actually a much more sophisticated market than it was in 2018? You've got stable coins, you've got an entire economy in decentralised finance, isn't that of interest to you? Because with decentralised finance, you could actually be generating income and not just holding assets. Have you actually considered decentralised finance?
NL: Yeah, more than consider, we offer product conditions, right? So, in fact, you're totally right, in a world that's totally changed since 2017. And last, I will say, Bitcoin has all time high effect.
First of all, Bitcoin is still very important in the economy, but we have a huge number of different coins. We start to see also the aspect of the business with the NFTs, and decentralised finance allows you to generate yield with your cryptos. You've got also the capacity to borrow some crypto using collaterals. So there are a lot of possibility in order to make you generate a strong interest in owning and manipulating cryptos.
So that's exactly the trend that we want to serve, even if the market is not necessarily going into an all time high peak in 2022. Maybe we are at the end of this big step in the progress of the Bitcoin price. We probably need to wait a little bit. But there are a lot of opportunities. And one change is that the type of investors also has changed a lot. We mentioned it, but you've got companies, you've got institutional investors. And that's also what surprised me a little bit, and maybe I'm a little bit disappointed about is in the current financial market situation.
In fact, we should not see a correlation between financial markets like the evolution of NASDAQ and Dow Jones, and the price of Bitcoin because it should be uncorrelated. This is not the same type of asset, bitcoin is only 21 million units, it is not controlled by a central bank. It has nothing to do with Tesla or evolution of the oil, or gas price.
But the evolution is a little bit of a weird thing because the people that today, buy and sell, are also the same that also buy and sell on the financial market. So, they consider Bitcoin as a risky asset, as it is a case for some of the fiat traditional financial markets, which are considered as risky. This could be stocks market, or utilities market, and in that case, they behave in the same way. So if they believe that the Fed is going to increase the rates, then they are going to disinvest. And to sell the position in order to invest in a less secure, but offering better a better yield. So this is a little bit weird because it should not be the case. So I ought also to see an evolution in this market. Because people did not create Bitcoin to behave as it has.
ED: You're probably the first person who's mentioned that the evolution of platforms will be regional. So I've taken note of what you just said.
NL: I strongly believe this is a case, and just think about the way the traditional economy works, and the way government works. That is a crypto business, which I truly believe is going to be part of the financial and the economy. It's not possible because otherwise, it's just give your everything to the US, and then we should all become US citizens.
ED: In fact, I have one question I wanted to ask you; in the event that you don't get a banking licence, or even if you did, is there a temptation to start a European stable coin? Because once you have a banking licence, a stable coin is a deposit account. Is that something that's crossed your mind, or how do you think about stable coins?
NL: In fact, we are offering one on the platform, which is a Euro ledge stable coin. This type of stable coin is something which is interesting, but don't forget that to be really used everywhere in in Europe, it has to be pushed with quite a lot of money and used by many platforms. Right now, it's used by us. This is just the beginning. And if you put touch too much to the currency, then you start having big troubles with banks and with the French and European Parliament.
ED: So, how are stable coins regulated in Europe, under what regulation do they come under?
NL: It goes into the new regulation which is going to be put in place which is called MICA which is Market in Crypto Assets. And that the European regulation for crypto. It covers everything platform, like me. Stable coin NSGs, defy. It's the global regulation framework for all the crypto businesses taken not only from what Bitcoin is, but really all the crypto technology. It goes also to securities token also. So it's defined in the into the MICA engine and right now, it goes in their mind, but it's not decided yet, because the law has not been voted. And the texts are still to be discussed, but it's considered by the regulators right now in Europe as an electronic payment.
ED: Thank you very much, Nicholas and I wish you very well.
NL: Thank you. Bye .