Solidi joy as Cambridge cryptocurrency trading platform earns FCA backing
Solidi has become the first platform in the UK where you can buy into Bitcoin within minutes without an ID check, following approval from the Financial Conduct Authority (FCA).
Solidi’s cryptocurrency trading platform was developed in 2015 by former Goldman Sachs and Morgan Stanley alumnus Jamie McNaught, but its genesis goes back further.
Jamie had been working for Morgan Stanley in Glasgow until he left to come south because his wife, a nurse, joined the oncology department at Addenbrooke’s. Jamie went to work for data company Software AG on St John’s Innovation Park, where he was working on big data analytics and fraud detection.
He attended a start-up weekend at Cambridge Judge Business School, where he met the then-director of the Accelerate Cambridge programme, Hanadi Jabado. Suitably encouraged, he had a demo of a Bitcoin exchange up and running by 2013, and was taken on to the Accelerate Cambridge programme in 2014, but the first iteration of the company failed due to differences between the co-founders, so “they kicked us out”. Jamie’s co-founder left and Jamie rejoined the accelerator in 2015 as Solidi.
“At that point we were helping people buy and sell cryptocurrencies safely,” Jamie says. “The whole platform was built from scratch starting in 2014, and was launched in 2015. It’s our own trading system, cryptowallet and a cold storage vault, which is like a bank vault. It requires cryptographic keys which we generate offline, so even if the account is hacked no money can be transferred.”
Bitcoin has had a stellar career since its inception in 2009, but banks have been notoriously slow to engage with the new currency. Indeed, financial service heavyweights have issued stark warnings about Bitcoin, Ethereum, Dogecoin, and others. In May, the governor of the Bank of England, Andrew Bailey, said cryptocurrencies “have no intrinsic value”, and warned: “Buy them only if you’re prepared to lose all your money.”
To which Jamie’s response is pretty much: well, he would say that, wouldn’t he?
“Banks didn’t want to get involved [with Solidi],” says Jamie. “Cryptocurrency and decentralisation is completely a threat to their business model but, regardless, there is a transition going on which is likely to involve a secure cryptocurrency.
“People like Bitcoin because it’s an attractive alternative to storing cash in a bank. Savers have seen no returns on their money since the 2008 financial crisis – governments rely on being able to print money and use inflation to debase debt.
“This is not a new phenomenon. Britain did this to reduce the real value of the debt from the Second World War – we repaid some, the rest was inflated away. People are now realising how little interest their savings, their pensions, have earned in the last 10 years, so there’s a distinct lack of trust.
“But the big change is that there are now so many more cryptocurrencies, and so much public awareness of it. The percentage of people holding bitcoin is now significantly higher.”
Around 2.3m UK citizens have been involved with cryptoassets – one in 30 of the population, with 400,000 more investors added in the last year.
“If you can buy £30 of Bitcoin without ID, it lets people learn to trust the currency. We’re one of the first to gain FCA recognition, so customers should know they can trust us, but the FCA has a temporary list...”
The temporary list is a failing compromise to suit incompatible interests – a farrago of bad regulatory oversight, lack of strategic vision, poor understanding of business dynamics and political meddling. After cryptocurrencies appeared in 2009, governments and regulators feared that digital currencies – untethered to the laws or policies of any nation state – was open to money laundering and the financing of terrorism and crime.
In 2017 Parliament passed the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations, which appointed the FCA as the anti-money laundering and counter-terrorist financing supervisor of UK cryptoasset businesses.
By December 2020, the FCA had not been able to assess all firms that had applied for registration to operate under the new regulations and created a “temporary registration regime” for existing crypto businesses. Any crypto-business that began operating after January 9, 2020 had to register with the FCA and be compliant with the Money Laundering, Terrorist Financing and Transfer of Funds Regulations before starting to trade.
The deadline for registration was shifted to July 9, 2021, but that deadline also came and went.
“Everyone was put on a temporary list in December,” explains Jamie, “and that list was supposed to end last month, but they’ve missed that now too, and the deadline is now March 2022.”
Fortunately, however, Solidi has now secured FCA approval and with it the crucial green light to trade.
“We are now fully registered, we got through the process very quickly,” says Jamie. “We started the application process in May 2020, it was 400 pages of documentation. Our advisers said that this level of detail was unprecedented and ‘we could just as easily become a bank’.
“They are very cautious about cryptocurrencies. Only five companies – including only two other retail exchanges, neither of which provide instant trading – on the temporary list have been registered: 80 are still on the list and 60 have been kicked off or withdrawn their application so far.”
Maybe because the regulators are worried that cryptocurrencies could become a failed investment?
“If that was the case it would’ve happened years ago. There are without doubt risks in cryptocurrencies but if you ask me is cryptocurrency safer than cash in the long term I’d say it is. My advice would be to look at saving in something other than cash – such as equities or cryptocurrency. We’re not very good at saving in this country – it’s about eight per cent of monthly income on average: in China it’s 47 per cent.”
But they are also worried about money launderers and terrorists?
“The FCA doesn’t want approved companies being used by criminals and foreign powers,” says Jamie. “Overseas organised crime, for instance, is a big worry for them – that’s why the registration bar has been set so high.”
And what about the amount of electricity it takes to mine Bitcoin – is that a scare story?
“I’ve always been concerned about where the electricity comes from,” replies Jamie. “I started cycling to work in the 1990s, and I was recycling even before there was a council recycling service, so it’s a difficult one, but generating Bitcoin usually uses spare activity on the grid, that is off-peak or electricity that is produced above and beyond immediate requirements, which would otherwise be wasted. But no one wants to pay huge amounts, so it does involve chasing cheaper electricity, which can sometimes mean coal.”
Solidi is currently a team of four: Jamie is CEO and StJohn Piano, who joined in 2019, is head of engineering. Initial seed funding of £100,000 was obtained last year from two private investors, and a Series A round – due to start soon – will look to raise at least £1m. The platform is also looking at adding other cryptocurrencies – including Elon Musk’s favourite, Dogecoin – this year.
For Solidi, it is all coming together. FCA registration means investors can now access cryptocurrency as easily as shares. But, as a sector, there are huge dangers ahead. Get involved or stay out? Cryptocurrency is the financial sector’s Brexit moment: is it a glorious new era for finance or is the banking system being lured on to the rocks?
Time will tell.