You wouldn’t know it from the price action, but this month dealt two more devastating blows to Bitcoin’s acceptance as a legitimate form of payment. Bitcoin finished March up nearly 19.2% to $59,158 USD – nothing short of a meteoric rise, albeit an extremely volatile one as the monthly high/low came in at $61,788/$48,370. Bitcoin also continued to capture headline-worthy attention from both print and online media as the parade of high-profile talking heads, including Fed Chair Jerome Powell, Bridgewater’s Ray Dalio, and Mark Cuban, continued to opine on its value, price and utility. Yet once again the lede seems to have been buried in the noise of the news cycle, as a careful reading of two particular stories highlights an increasing, and arguably insurmountable, obstacle to the high-flying cryptocurrency’s potential as an accepted form of payment in mainstream commerce.
The first story to catch my attention was Paypal’s announcement of its roll out of a previously disclosed, new feature called Checkout with Crypto. The service purportedly allows Paypal users to “pay for products and services with cryptocurrencies”. This includes Bitcoin. In simple terms, Paypal users can avail themselves of cryptocurrencies in their Paypal wallet to fund purchases. But, and it’s a BIG but, similar to other contemporary “pay with crypto” schemes, the mechanics of the transaction ultimately require a crypto-to-fiat conversion for settlement with merchants. So, despite the headlines of using cryptocurrency – specifically Bitcoin – as a payment method, what Paypal really has done is created a slicker, more frictionless workaround for what ultimately maintains the fiat-as-payment status quo. This is hardly bad news for Paypal. In fact, the Checkout with Crypto feature lends continued credibility to Paypal’s status as one of the world’s most forward-thinking, technologically advanced, and best-run fintechs. But the flipside is horrible news for crypto, especially Bitcoin, as it’s another implicit rejection of Bitcoin as an acceptable form of payment.
The second story that contributed to Bitcoin’s terrible, horrible, no good, very bad month was a news release from Reuters this past Monday wherein Visa announced the launch of a pilot program for cryptocurrency payments without the need for a crypto-to-fiat conversion. In partnership with Anchorage, the country’s first federally chartered crypto-asset bank, Visa is testing a crypto-to-crypto payment and settlement protocol. This is nothing short of a major breakthrough for cryptocurrency as a legitimate payment method in mainstream commerce, but it’s a devastating blow to Bitcoin as the Visa protocol explicitly excludes Bitcoin as a crypto payment method. The Visa protocol is being designed for central bank digital currencies (CBDCs) and stablecoins. This shouldn’t come as much of a surprise as it follows on the heels of last month’s announcement from Mastercard that it’s also exploring crypto payment protocols for CBDCs and stablecoins, and not for Bitcoin.
The attributes of Bitcoin that have condemned it to exclusion as an accepted form of payment in mainstream commerce are its lack of price stability and anonymity of transactional counterparties. The stability issue continues to perpetuate itself in spite of Bitcoin’s appreciating price, as evidenced d by the volatility referenced above. This may correct over time as the marketplace for Bitcoin as an asset class continues to grow with investor interest. However, the anonymity issue is larger and more problematic. The anonymity of Bitcoin as a payment form, at least as of today, is a non-starter for commercial payments because it contravenes major ethical and policy provisions of our banking system: the ability of banks to accurately conduct a know your customer (KYC) assessment and the detection and enforcement of anti-money laundering laws.
At a practical level, the Visa and Paypal news this past month, including the Mastercard announcement form February, are Bitcoin-as-a-payment-form killers. These are very large, publicly traded, front line fintech firms whose market share and market valuation are functions of the millions of customers who use their services, and the investors who fund their growth. The positions these companies have taken against Bitcoin as a payment form, both explicit and implied, are crushing. Despite the flashy, and slightly misleading media headlines, this has indeed been a terrible, horrible, no good, very bad month for Bitcoin. And all the more striking because the rejection as a payment form hasn’t come from the usual sources – the Federal Reserve, Department of Treasury – but the freely traded and most active capital markets in the world.
– Adam T. Hark, Managing Director, Wellesley Hills Financial, LLC