In today’s Money Morning…Ethereum the key, but no panacea…here’s how I think it unfolds from here…that’s the beauty of its design…and more…
Today’s piece is all about Visa Inc [NYSE:VISA] and their move to accept one form of cryptocurrency as payment.
From a ship blocking the Suez Canal, to hedge fund defaults making Wall Street blink for a moment, there’s always a flood of news to choose from.
Smart investors know how to selectively sift through the mountain of headlines and data to get to the most important bits.
Today though, the Visa story is the most important.
Here’s the coverage from Reuters:
‘Visa Inc said on Monday it will allow the use of the cryptocurrency USD Coin to settle transactions on its payment network… The company told Reuters it had launched the pilot program with payment and crypto platform Crypto.com and plans to offer the option to more partners later this year.
‘Bitcoin, the most popular crypto coin, jumped to a one-week high on the news, rising as much as 4.5% to $58,300 and heading back toward a record-high above $61,000 hit earlier this month.’
USDC is a stablecoin that works 1-to-1 with the US dollar and has a coin market cap of US$11 billion.
Ethereum the key, but no panacea
Normally, if you are paying for a coffee with a Crypto.com Visa card the money in the crypto wallet needs to be converted to plain old USD.
But now, the crypto wallet can interact with the card in your physical wallet.
As Reuters explains:
‘Visa’s latest step, which will use the Ethereum blockchain, strips out the need to convert digital coin into traditional money in order for the transaction to be settled.
‘Visa said it has partnered with digital asset bank Anchorage and completed the first transaction this month.’
Visa is certainly going hard at crypto giving a range of early-stage companies resources and access to their systems — companies like BlockFi, Fold, and Bitpanda, as well as companies that offer bitcoin-back rewards.
Ethereum is still a bit clunky and won’t be a panacea to the various ailments of the financial system immediately.
But it bounced strongly on the news, and I expect the upward momentum to continue.
Here’s how I think it unfolds from here
Visa joins the ranks of BNY Mellon, BlackRock Inc, and Mastercard Inc in pushing crypto into the mainstream.
The real question is how do government initiatives to launch central bank-backed digital currencies (CBDCs) interact with existing fintech companies, the old big banks, and crypto?
It’s going to be a very entangled space — something I’ve called techno-monetary competition.
CBDCs offer a range of potentially beneficial functions (for governments, that is), fintechs are thriving off of the big banks’ ineptitude while crypto remains the least constrained, despite problems with transaction speeds.
You can be sure incumbent market players will leverage their power to force their products down consumers’ throats.
Governments like India, for example, are moving to ban crypto.
Banks will use their economies of scale to dominate their legacy market segments.
For example, it’s no surprise to learn that via the Australian Financial Review:
‘According to the latest figures released by the prudential regulator, the Australian Prudential Regulation Authority (APRA), the big four banks now account for 74.8 per cent of all owner-occupied home loans on the books of authorised deposit institutions (ADIs) in the country, and 82 per cent of all investor loans.’
And fintechs, including BNPL providers, may feel the pinch from regulators.
Leaving just crypto.
You can talk about bitcoin being an inflation hedge, a portfolio diversifier, and a safe haven.
But given the big moves that are afoot in this competitive landscape, maybe it’s better you start thinking of it as a ‘power abuse hedge’.
And in that sense, Visa’s latest initiative may eventually send BTC to the Moon.
Not because of anything intrinsic to the currency itself and how it interacts with current fiat transfer systems.
But because of behaviours intrinsic to human nature — namely the Nietzschean ‘will to power’.
Just as every organism seeks to create an environment in which it thrives, every money-minter and associated middleman institution will scramble to protect their piece of the monetary pie.
Cryptocurrencies like bitcoin deny these institutions the levers of power that they know so well.
And that’s the beauty of its design.
For Money Morning
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