Strike is letting its U.S. customers buy and sell bitcoin for almost zero in fees, sending shots across the bows of Coinbase, Square’s Cash App, PayPal and other incumbents.

The Chicago-based startup, best known for helping El Salvador adopt bitcoin, said Thursday it would charge only around 0.3% for brokering BTC trades in the 48 states and other U.S. jurisdictions where Strike operates. By comparison, Coinbase, which went public on the Nasdaq this year, collects as much as 3.99%, depending on the payment method and transaction size.

Jack Mallers, founder and CEO of Strike and its parent company Zap Technologies, likened the move to throwing “a grenade in Coinbase’s HQ.” In a blog post, he called Coinbase’s fees “asinine.”

If widely adopted, Strike’s new service stands to drive down the price of bitcoin trades for retail investors in the U.S. market, a development anticipated by many a Wall Street analyst in the lead-up to Coinbase’s stock listing in April. Traditional stock brokerage apps saw a race to zero on fees; wouldn’t crypto incumbents see the same? 

Cash App, offered by Twitter CEO Jack Dorsey’s payments company Square, takes about 2.2% in fees for bitcoin purchases, based on quotes the app gave a CoinDesk staffer Monday. Swan Bitcoin, which caters to long-term bitcoin holders, charges 0.99% to 2.29% depending on the membership plan and amount socked away in BTC weekly. PayPal and its Venmo subsidiary charge a flat fee for bitcoin purchases of less than $25 and 1.5% to 2.3% for amounts above that.

Strike does not expect to make money on the new service, Mallers said. The 0.3% fee will only cover the spread charged by the market-making firms supplying the bitcoin, he said, without identifying those liquidity providers. The service will start with a wait list, and open to the public in the coming weeks, he wrote in the blog.

In the next few months, Strike expects the fee to drop to as low as 0.1% as its volume grows, Mallers said. “The more our volume grows, the less our partners charge,” he wrote.

The aim is to drive prices in the market as close to nothing as possible, which Mallers said would be in keeping with Bitcoin’s ethos. 

“Acquiring open-source money should be free,” he told CoinDesk. “It is a race to zero.”

Throwing down a challenge to Coinbase’s CEO, Mallers added, with characteristic aplomb:  “Your move, Brian Armstrong. Come play basketball in my court.” 

Rising star

Thursday’s bombshell is the second from Mallers in a month.

At the Bitcoin Miami conference on June 5, he brought down the house by introducing a video announcement from El Salvador President Nayib Bukele, who revealed his plan to make bitcoin legal tender in the Central American country.

In January, Mallers outlined a plan to offer remittances of dollar value from the U.S. to El Salvador using Bitcoin and its second-layer Lightning Network as rails. Initially, the dollars were to show up in the destination country in the synthetic form of Tether’s USDT stablecoin, but Mallers recently said that the controversial token is being phased out of Strike’s plan.

Since Mallers became acquainted with Bukele, Strike has been charged with rewiring El Salvador’s financial infrastructure, and has integrations in progress with local financial institutions, the 27-year-old entrepreneur said on a podcast. 

To be fair, Coinbase defines its market differently than Strike. Armstrong recently said he wants Coinbase to list every crypto asset wherever it legally can, and the company already supports more than 70. Strike, by contrast, is laser-focused, so to speak, on leveraging Bitcoin and Lightning to further financial inclusion. 

Also, over the years Coinbase has acquired money transmission or similar licenses in 44 states, whereas a recent report in crypto publication Decrypt raised questions about Strike’s authorizations to do business nationwide. 

About that licensing...

Strike’s parent Zap is registered as a money services business (MSB) with the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury Department. That is a necessary step to handle money movement anywhere in the country, but not sufficient, and Zap has a money transmission license in only one state, Washington. 

The company said it relies on a regulated third party to do the actual money transmitting. That third party, a Nevada-chartered trust company, said it is authorized to act as a money transmitter nationwide. 

“In the U.S., Strike works with a state-chartered and regulated trust company called Prime Trust,” a Strike spokesperson told CoinDesk. “This enables Strike to offer its current suite of products to its customers as a technology provider while the financial institution holds the customer funds and effects transfers.” 

The Strike spokesperson said the company is “in the process of seeking money transmitter licenses in various states” so that it can achieve its roadmap for the U.S. 

In the meantime, according to both parties, Strike is leveraging Prime Trust’s permissions. 

“They do not touch the money at all, ever,” Prime Trust CEO Scott Purcell told CoinDesk. “We open the accounts, we touch the money, we do all the AML/KYC” – shorthand for compliance with anti-money-laundering and know-your-customer laws.

In this setup, Strike is “simply a technology layer and we are actually the ones that effect the transactions,” Purcell said. “Thus there’s no need for them to have any type of licensing.” Many other Prime Trust customers use this model, he said. 

It's complicated

Several industry lawyers interviewed by CoinDesk said only around 20 states expressly exempt state-chartered trust companies from money transmission licensing requirements. (Banks, by contrast, are exempt across the board.)

In states without explicit exemptions, the analysis would hinge on whether the activities being performed by the trust company fell under the local statute’s definition of money transmission, said one lawyer, a former state regulator.

When asked if Prime Trust can do business across state lines, Purcell answered unequivocally: “Yes – every day of the week and twice on Sunday.”

Some states provide more clarity than others, but Purcell pointed to reciprocity agreements between most states in explaining how Prime Trust is able to operate across different borders within the U.S.

“The interstate regulatory regimes are something we spend a lot of time on and get very detailed and very complex,” he said. The company employs a “deep bench” of former regulators from the Office of the Comptroller of the Currency, the Federal Reserve, Securities and Exchange Commission, Department of Justice and other agencies. “We’re compliant in everything we do.”

Nikhilesh De and Cheyenne Ligon contributed reporting.

UPDATE (July 1, 17:05 UTC): Adds link to Mallers’ blog post.