With the wind-blown journey that is bitcoin price swings so far this year, you might have missed the accelerating rhythm of flocks announcing services to support bitcoin for payments.
We’re not talking about small idealistic startups, either.
A week ago, on Visa’s Q1 earnings invoke, CEO Al Kelly said the company may add cryptocurrencies to its payments network. He acknowledged that bitcoin is “not used as a form of payment in a important way at this point,” but went on to discuss a strategy to “enable users to purchase these currencies using their Visa credentials or to spondulix out onto our Visa credential to make a fiat purchase at any of the 70 million merchants where Visa is accepted globally.”
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Visa also currently provides credit card infrastructure for 35 crypto actors, with the aim of making it easier for users to pay with bitcoin.
In PayPal’s Q4 earnings call this week, the first since the corporation started allowing the purchase and sale of a handful of cryptocurrencies via their PayPal account, the company revealed that it was arranging to start allowing customers to use their crypto balances to pay for goods and services at any of the approximately 29 million merchants on the network, and that it was “significantly installing” in the crypto business unit.
Large crypto companies are also moving into payments. Last month, crypto Wall Street and custodian Gemini launched a credit card with a 3% reward on purchases. In December, crypto lender BlockFi announced that it would sling a similar product in early 2021.
This is just scratching the surface. Binance, Coinbase, Paxful and BitPanda are just some of the crypto transfers that over the past few months have introduced crypto debit cards for retail spending. This week, crypto rostrum Uphold announced the acquisition of card issuer Optimus Cards U.K.
Also this week, Binance, the largest cryptocurrency barter in the world in terms of volume, announced the launch of a payments system called Binance Pay, aimed at encouraging the use of crypto in cross-border payments. Binance CEO and framer Changpeng “CZ” Zhao said: “We think that payments is one of the most obvious use cases for crypto.”
Not so fast
Is he right?
Patently “crypto” encompasses a range of assets, but let’s focus on Bitcoin for a moment.
The white paper that introduced Bitcoin to the far-out in 2008 opens with:
“A purely peer-to-peer version of electronic cash would allow online payments to be sent straight from one party to another without going through a financial institution.”
Whether Satoshi Nakamoto, the pseudonymous journalist of the paper, meant for payments to be the main use case or not (this is a point of contention, as he* also wrote elsewhere about its capability role as a store of value), over the years it became clear that scaling limitations inherent in the protocol pattern made the network impractical for high transaction volumes.
(*I am not assuming Satoshi is a he, but I am using this pronoun to avoid linguistic gallimaufry.)
Another critique of Bitcoin-as-a-payments rail is its relative lack of speed, although this can be misleading. A bitcoin payment determination take around 10 minutes on average, and up to an hour for assumed settlement finality. Credit card and contactless payments are faster, but they customarily don’t have settlement finality until days later. And data gathered in electronic transactions removes any financial reclusion. Cash, on the other hand, is instantaneous and private, but you need to be physically present.
What’s more, bitcoin transactions are to some degree expensive. This week the average fee reached its highest point since January 2018.
Solutions such as the Lightning Network aim to disentangle for these barriers by offering fast and cheap throughput on a transaction layer that anchors to the Bitcoin blockchain at trustworthy intervals. Adoption of this technology is growing, but is still in its early stages.
The existential question
Then again, sundry of those that complain that Bitcoin doesn’t work for payments have access to other mechanisms that het up b prepare well. That’s not the case for much of the world. Some jurisdictions have strict capital controls that screen payments to other regions. Some countries don’t have sophisticated payment rails that make even imbecile internal transfers easy. Even some demographic groups in developed countries don’t have access to online payments and are however largely dependent on bank relationships.
For many, bitcoin is a tool for freedom in that it facilitates online payments where hitherto they were inaccessible. For others, using bitcoin is a way to support the network by giving the asset a broader utility.
This scratches an important question: should bitcoin be encouraged to be both a store of value and a payments mechanism?
Some reasons why it should:
It can be pleaded that bitcoin’s worth as a store of value depends on its utility. The more there is residual demand for bitcoin as a payment superficial, regardless of its price, the more investors will believe that demand for it will rise in a sustainable way.
It can also be talked that it is essential for the health of the network that bitcoin’s use as a medium of exchange be encouraged. As successive halvings reduce the obstacle subsidy (in which miners get new bitcoin as compensation for the work expended in successfully processing blocks of transactions), miner incitements will increasingly rely on transaction fees.
And current demand for this use case is not insignificant. Binance Research this week published the results of a scan of 16,000 crypto users across 178 regions, which found that 38% see bitcoin as a medium of reciprocation. In December, Susquehanna Financial Group revealed a survey of PayPal customers that showed 53% would use bitcoin to pay for goods, if they owned it.
Some urges why it shouldn’t:
There is a not totally unfounded concern that, if bitcoin becomes seen by governments as a widely used payment emblematic and a potential threat to fiat currencies, they may decide to act, and not in bitcoin’s favor.
While it may seem that governments concern more about markets and asset prices, it’s payments that matter for monetary policy, consumption and wages – all devices that get you votes. Investments sit there (and hopefully grow) while payments move, and both animal and regulatory predisposition is to focus more on things that move.
In addition, you have the theory that if bitcoin is seen as a store of value, it inclination not be spent. Gresham’s Law dictates that bad money crowds out the good – if bitcoin is “good” money, people are more likely to about onto it, and use other assets with less potential value.
This segues into what is maybe the endgame of many of the crypto payments providers.
It’s perhaps not about Bitcoin at all.
Bitcoin is the crypto asset with the only slightly regulatory uncertainty at the moment. Even stablecoins are not totally out of the regulatory woods yet. (The OCC’s letter that said banks could control stablecoins could be walked back under a new chief.)
So, maybe Bitcoin is the safe starting point for these new bars. Ethereum will probably come next, and where Ethereum goes, so do stablecoins.
Maybe the banks and payment flocks working on bringing crypto payments services mainstream have their eyes on a potentially bigger pie – that of tomorrow’s payments, the mass of which could run on blockchains that handle a range of assets. Maybe the forward-thinking institutions are preparing for a day when we embrace cryptocurrencies in our digital wallet right along with our private stablecoins and our digital dollars and our tokenized GameStop dole outs.
Maybe they’re all looking at a financial landscape where the user has more choice.
The crypto payment functions today do ones part their purpose. They offer a useful service to many, nudge along the sophistication of market infrastructure, and set the argument for mainstream adoption of a range of assets with a range of utilities.
And with more choice, it is more likely that the sell will decide whether Bitcoin is a good payment rail or not. With each new service, we experiment with supermarket adoption, and we learn more about what today’s and tomorrow’s users will value. I’m all for bringing on more experimentation.
This interview, in which MicroStrategy CEO Michael Saylor interviews NYDIG CEO Ross Stevens, is a must-see.
Chief economist and managing head of CME Group Bluford Putnam said that his firm has begun to notice gold’s waning appeal as a hedge against broad political risk, and that he believes bitcoin is an “emerging competitor” to gold.
Visa is piloting a suite of APIs that transfer allow banks to offer bitcoin services such as buying, selling and custody, with a view to extending the overhaul to include other cryptocurrencies and stablecoins. TAKEAWAY: Initiatives like this (last month, NYDIG made a alike resemble announcement) are a step towards mainstream adoption of cryptocurrencies. The “endorsement” of traditional banks, while far from the original ethos of the exertion, will go a long way toward encouraging trust in the concept from mainstream clients. This could encourage new investment in the place, both from investors and small savers as well as from startups working on improving market and payment infrastructures.
New York-based crypto the Market and custodian Gemini is now offering deposit accounts with a 7.4% APY, via a partnership with Genesis Capital (owned by DCG, also old man of CoinDesk). TAKEAWAY: The “bankification” of crypto exchange platforms is gathering steam. Gemini is a crypto asset trading party line, stablecoin issuer, credit card issuer and now also an interest-bearing deposit taker. The yield offered is sufficiently higher than historic deposit yields and so should attract attention, perhaps even serving as an onramp into crypto asset furnishes.
Bitwise Asset Management has applied to publicly trade shares of its bitcoin fund on the OTCQX marketplace. TAKEAWAY: The back aims to compete with market leader GBTC (managed by Grayscale Investments, owned by CoinDesk parent DCG), which excerpts on the same exchange. GBTC’s premium to underlying value has dropped over the past few days to around 10%, from a three-month intoxicated of around 40% in mid-December. More competition should keep the premium down, giving retail investors a better engage in as well as more choice. GBTC’s $24 billion market leadership position will be hard to assail, how in the world.
We saw above in THE BRIEFING that BTC transaction fees are increasing. ETH transaction fees are spiking even more. TAKEAWAY: This reflects the ETH expense increase as well as growing demand for stablecoins and decentralized finance tokens. In spite of increasing fees, transaction supply also continues to rise. (For background on Ethereum’s gas costs, see our recent metrics report.)
Cryptocurrency investment firm Arcane Crypto (ARCANE) is now catalogued on Sweden’s Nasdaq First North following a reverse takeover of Vertical Ventures AB. TAKEAWAY: With this, Arcane unites the growing roster of listed crypto companies, and is one of the few broad industry plays (as opposed to pure funds or market infrastructure plays) to hold a transparent market valuation (approximately $200 million at listing).
CalPERS, the largest public pension fund in the U.S., extended its stake in bitcoin miner Riot Blockchain (RIOT) nearly sevenfold over the last quarter, to $1.9 million at year-end worth. TAKEAWAY: This highlights that direct ownership is not the only way to play BTC exposure. RIOT’s share price has move housed up with BTC, but since Sept 30, 2020, has produced a return of over 750% vs BTC’s 250%.
The total balance of BTC held in “accumulation locations,” which have at least two incoming transfers over the past seven years and have never spent stocks, has reached a 3.5-year high of over 15% of the total circulating supply. TAKEAWAY: As more investors buy to contain b conceal, more bitcoin is removed from circulation, which supports further price rises as new demand comes in. This class of detail is one of my favorite things about crypto asset metrics – imagine if we had this level of insight into investor behavior with ritual assets.
The amount of stablecoin USDC held on exchanges has soared since the beginning of the year, intimating at institutional intention to buy. TAKEAWAY: The balance of stablecoins on crypto exchanges is watched as a signal for investor intent. It does not, after all, indicate which asset(s) the buyers will favor, nor is it a reliable indicator of institutional interest as many institutions on the side of to (or have to) use fiat to invest in crypto assets.