Report: OKCoin and Huobi plan to offer bank-like services

It’s no surprise that cryptocurrency exchanges OKCoin and Huobi managed to recover after the slaughter of China’s “bitcoin ban” earlier this year. While other exchanges were complying with the rules established by the People’s Bank of China (PBoC), and hoping that the still-tiny bitcoin industry would fly under the regulators authority, OKCoin and Huobi were looking to ways to subvert that very system, and put their operations outside of the PBoC’s grasp. When their ability to take bank deposits was severed, they used a voucher system from third-party vendors. When the banks themselves began closing accounts, the exchanges began moving their accounts to areas outside of mainland China, such as Hong Kong’s Special Administrative Region. Both companies are survivors.

What may be somewhat surprising, however, are OKCoin and Huobi’s future plans in a still-hostile setting for bitcoin business. Writing for Forbes, reporter Eric Mu explains that both companies are moving in a more bank-like direction, the exact opposite one might expect from a currency specifically invented to avoid central banking controls.

According to Mu, OKCoin and Huobi are following the model established by Chinese “bitcoin bank” Bitcoinsand, which opened to great controversy in August of 2013. That company appears to have completely evaded the PBoC crackdown, perhaps in part because it operates much like a traditional bank rather than as a speculation-driven exchange. There are questions about how such a model could be sustainable, however, given that bitcoin’s regulation-free, ownership-based structure is poorly suited to a third-party service like a bank.

How could such a “bitcoin bank” make money? Bitcoinsand hasn’t revealed its model, but Mu suspects that “the coins were lent to people who were willing to pay higher interest rates – but who would borrow a highly volatile currency whose real world use is still limited and pay more than 5 percent a year? Naturally, fingers were pointed to the short-sellers. Actually, there had been sporadic rumors that the founder himself was involved in shorting – Li was one of the first who posted on social media about the central bank ban last year.”

As a result, Mu is more than a little skeptical about the model OKCoin and Huobi appear to be moving towards. He notes that while many may find the idea of an interest-bearing bitcoin deposit account appealing, the move actually undermines the point of bitcoin’s trustless structure. In effect, it’s a speculation-based risk that is substantially worse than traditional banking.

Mu concludes by noting: “After experiencing several boom-bust cycles, seeing my coin’s value rising and falling is something that I can live with, but losing them for over-trusting is something that I just can’t forgive myself doing.”