So the profit comes from where?
The profit comes from bringing together the people who bank with you (who make money if bitcoins go up and lose money if bitcoins go down) and the people who want to take a short position on bitcoins (who make money if bitcoins go down and lose money if bitcoins go up). You just have to trade bitcoins and move money.
Here's an oversimplified example:
Say someone wants to put 100 bitcoins away for a month. He hopes to get 2% (APR) interest. That means that someone has to provide him with about 100.2 bitcoins in a month for his 100 bitcoins today. So he gives you 100 bitcoins, you promise to give him 100.2 bitcoins next month.
Say someone else thinks bitcoins will go down. They want to sell 100 bitcoins today and buy 102 bitcoins next month (hoping to keep the positive difference in USD), the extra two bitcoins are his transaction fee. Of course, they don't have any bitcoins because they think they're going down.
How can you make both these guys happy and make money?
Answer:
1) The second guy gives you a secured note for the maximum expected cost of 102 bitcoins next month.
2) You take the first guy's 100 bitcoins and sell them for USD. You invest those USD.
3) You wait a month and buy 102 bitcoins for USD. You use the USD from the second guy's note.
4) You give the first guy his 100.2 bitcoins.
5) You give the USD from the first sale to the second guy.
6) You made 1.8 bitcoins and the interest on the USD for 1 month less the cost of the two USD<->bitcoin exchanges.
If the bitcoin ever shoots up so high there's a risk the note cannot buy the 102 bitcoins, you immediately buy at least 100.2 bitcoins and your deal with the second guy terminates, him forfeiting the note. He can make the note as big as he wants to ride out bumps, or as small as he wants to cap his losses, it's his choice. (You still keep up to 1.2 bitcoins if you buy fast enough.) This also allows the second guy to set the maximum amount he can lose if he guessed wrong and bitcoins go up.
