How are you planning to hedge against a heavy fall in the BTC/EUR rate? I'm not aware of any cheap high-volume means to do so (other than converting into fiat which would be rather pointless).
Your plan pretty much relies on BTC rising vs EUR. Whilst I'd tend to agree that long-term that seems likely it's also likely that any such rise won't be a steady one but will have the occasional large bubble + collapse.
If BTC happens to be at the top of a bubble when you launch it could be rather a problem for you. Whilst you may hope your own purchases could extend the bubble you can't really base a whole business plan on hoping BTC doesn't have a collapse shortly after you start taking deposits (if it happens later then it isn't such a big problem - after a while only a total collapse of BTC would be a major issue for you).
It's certainly an interesting business model - borrow money denominated in EUR then bet it all on BTC rising. And rather than paying interest for the loans to speculate with, charge them fees for the privilege.
We shall be operating our own local index based on several determining factors to prevent bubbles having a detrimental effect on our operations, these bubbles will also provide us with the opportunity to strengthen our own position.
How does having your own local index protect against exchange-rate movement?
Customer deposits Euro and wants a Euro-denominated account. You can't use a local index to change how many Euros he deposits.
You then purchase BTC. It doesn't matter what your index says, you have to buy them at market rate from someone selling them.
BTC then crashes vs Euro.
How does your index protect against that?
I can see your own index helping you when people deposit Euros and want a BTC-denominated account, but by your own estimates 98% of accounts will be Euro-denominated. The 2% that are BTC-denominated can't provide useful hedging for the other 98% of customers no matter what your index says.
Our local index will determine the price the Bitcoins flowing between our customers when depositing and withdrawing, this will be determined on long averages, our purchase price, how efficiently we can liquidate our own positions to ensure sufficient cash flow to cover larger withdrawals, customer behavioral trends.
If the price drops considerably quickly it will take time to filter through the averages until it reaches the front line, this additional time will enable us to take advantage of trading conditions to strengthen our position.
I see a lot of words there but no real meaning.
When someone withdraws their euros there's no "flowing between customers" - you have to sell Bitcoins to recover their euros.
You can pretend on paper that you still have enough BTC to cover euro-denominated deposits (by using an internal exchange-rate that isn't in track with the market) but you can't actually sell your BTC onto the open market at that internal index price.
The scenario I'm looking at is the typical bubble one - think of what happened earlier this year. BTC rose up to $250+ vs USD then collapsed down to $100 very rapidly and stayed there for months (dipping even lower on occasions). If you had 5 million euros on deposit with you and 1 million euros float and BTC halved vs the euro then at best you'd only have 3.5 million euros worth of realisable fiat. i.e. you'd be insolvent.
Pretending BTC was still worth $250 doesn't solve that. And as soon as customers notice and start withdrawing the deficit grows as every withdrawal has to be covered by selling BTC at the real price not some pretend index.
And what does "this additional time will enable us to take advantage of trading conditions to strengthen our position" mean? You claim you'd be unable to even move the BTC around without customers signing transactions - so how can you trade with them?
We shall operate our own reserves for trading both EUR & BTC and not deposits, our strategy will be constantly monitored and adjusted. Not every BTC and Euro will be derived from the public markets and we also have several options on futures. Our strategies will be kept private because we do not want to buy off the back of our own hype, this will be partly unavoidable but we will be doing everything we can to mitigate that risk.
If someone withdraws €5m and other withdrawals that day alone make the total €7m, we will also take deposits that day at the same price point, even if the deposits that day total €5m we will already be in a strong position because we would have the trading benefits of adding that €7m to the market prior to the decrease, increasing the strength of our own reserves.
In relation to the tax status in the UK, that was a strong factor in choosing the UK.
