By Adam Atlas
Attorney at Law
One way to invest in cryptocurrencies, such as Bitcoin, is to buy and sell them while trying to divine when the right moments are to take profit. Around the crypto industry are a growing variety of payment businesses that seek to profit from the crypto industry without being invested in crypto itself. This is the shovel and pickaxe crowd.
Having advised on many intersections between fiat payments and crypto, I thought it might jog the imagination of readers to see a list of fiat-focused payments business opportunities in the era of crypto.
The term ‘liquidity provider’ is jargon for a crypto seller. Businesses that sell crypto to U.S. persons are deemed to be money services businesses under the U.S. Bank Secrecy Act and are also deemed to be money transmitters or virtual currency businesses under many state banking laws.
This means that liquidity providers have to be registered with the Financial Crimes Enforcement Network (FinCEN) and need state money transmitter or virtual currency business licenses in some states. Obtaining those licenses and operating as a FinCEN-registered money services business is a costly, time-consuming and difficult process.
Despite all of the oversight of liquidity providers by state and federal regulators, they find it very difficult to get merchant accounts. If a given liquidity provider wants to sell Bitcoin, for example, in exchange for card payments, the liquidity provider will be turned away by most processors and acquiring banks.
Enter the enterprising ISO. An ISO that finds a bank willing to board crypto will likely find a fair number of liquidity providers looking for processing. Given that liquidity providers are a business that could unwittingly (or willingly) facilitate money laundering or the financing of terrorism, the few acquirers that will board them will still put them through extremely rigorous underwriting.
An ISO that understands the information required of the acquirer is in a good position to increase the efficiency of processing liquidity provider applications for merchant accounts. Given how rare acquiring banks for liquidity providers are, they are able to command high processing fees for their services. Those fees are theoretically open for sharing with ISOs that are able to find, solicit, underwrite and close liquidity providers as merchant customers.
Jargon for converting fiat to crypto is an "on ramp." Liquidity providers selling crypto and using merchant accounts are "on ramps." What about off-ramps then?
It’s old fashioned to say that card programs are the flavor of the month. It’s still worth looking at card programs tied to crypto, as they are a staple of the industry.
Crypto owners still need to transact in fiat once in a while, if only to pay for their car, gas, rent, groceries, etc. Consequently, there is demand for card issuing programs that are backed by crypto assets. It’s possible to obtain a debit card that—when authorized—automatically triggers the sale of some of your crypto holdings. Suppose you have $2,000 of Bitcoin. If you authorize a transaction for $50 with one of these cards, $50 of Bitcoin will be sold, plus a bit more to cover fees, and the proceeds of that sale will be used to fund the card transaction that was authorized.
There is substantial demand for cards that match more or less this fact pattern. As with merchant accounts, card issuing banks are very skittish about crypto-related card programs. Many banks have banned crypto-related businesses altogether.
Assuming a payments business has technical know-how, AML and other risk management skills and tools, it is feasible to play a role in putting together a card program that supports crypto holders looking for an off-ramp.
Cash advance used to be a dirty word. Now, however, almost 20 years since David Goldin challenged the AdvanceMe patent and founded the Small Business Finance Association (with a little help from me), it is a fully commoditized business with plenty of caselaw on what on earth it is.
A cash advance is jargon for providing capital to a merchant in exchange for purchasing their future receivables. For example, a merchant may sell $25,000 of future receivables for $20,000. The cash advance provider would pay a purchase price of $20,000 and then, over time, as and when the merchant receives its receivables, the $25,000 purchased is paid to the cash advance provider. When done correctly, a cash advance is not a loan.
There are a number of crypto businesses that might benefit from cash advances, including liquidity providers, exchanges, crypto ATM operators and others. There are some regulatory complexities associated with a cash advance to a crypto business, but they are not insurmountable.
Many crypto businesses are loath to take on the risk associated with fluctuating crypto prices. Still, they are deemed high risk and have a hard time finding capital.
A crypto payment processor is a payment processor that helps a merchant take payment in crypto but receive settlement in fiat (or the other way around). Crypto payment processors, like liquidity providers, are highly regulated under both federal and state law.
One skill that does not come with all of those licenses is merchant underwriting. An ISO that is experienced in soliciting, underwriting and supporting merchants is in a position to add substantial value to a crypto payment processing provider that might not have the boots-on-the-ground experience of a regular fiat processing ISO.
Crypto payment processors have been so busy getting all their licenses and compliance policies in place, they often forget to engage with actual salespeople who know how to solicit merchants in the real world. This is where ISOs can add a lot of value.
With President-elect Trump promising to put Bitcoin on the balance sheet of the country, it looks like crypto is here to stay and likely to become a more common feature in the payments landscape. Being mindful of the many scams and compliance pitfalls, there are plenty of legal ways to turn a profit in crypto without ever owning any—if that is your preference. 
In publishing The Green Sheet, neither the author nor the publisher are engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. For further information on this article, please contact Adam Atlas, Attorney at Law email: atlas@adamatlas.com, Tel. 514-842-0886.
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