We’ve seen it all before, haven’t we? Bitcoin at $ 20,000 seems like this … 2020.
We’re now at $ 50,000 and counting, and 2021 is barely a month and a half old. And it could fall next month. In the month after, it can swing up again. It’s such a rapidly changing topic that even Nobel Prize-winning economist Paul Krugman once called cryptocurrency economically irrelevant.
The bottom line is that the cryptocurrency has defied precise predictions. However, there are market dynamics that lead to reasonable analysis. For example, Stephen Pair, CEO of the crypto management platform BitPay, said in an interview with Karen Webster, CEO of PYMNTS, that the boost in Bitcoin was due to a number of factors.
First there is the scarcity value. The meteoric increase in 2020 is partly due to the fact that the supply of new bitcoins has been halved. This process of halving the issuance of crypto across networks every four years means fewer coins are available.
“They are also seeing a lot more institutional interest,” said Pair, where companies have invested portions of their balance sheets in Bitcoin.
MicroStrategy and Tesla come to mind. Hedge funds and big banks are making the leap.
All in all, he said, “This time around is a little different from the earlier days when it was mostly driven by retail purchases.”
All of these events, he said, are creating an environment where more people want to get into the asset class, and Bitcoin is the oldest and most secure of them all.
“Bitcoin is probably the best understood of all cryptocurrencies in terms of behavior and functioning,” he said. “It hasn’t changed much over the years, and it probably won’t change very much from now on.”
With this stability, utilities and use cases will evolve.
Bit by bit, the use of Bitcoin as a currency is taking time, and as Webster noted, card networks (like Visa) allow crypto to be issued through their rails.
In order for cryptos to become part of the popular payment options – compared to assets comparable to digital gold – Pair said, “The point of investing your savings in anything is for this action to either preserve or increase value. What we are seeing are people who may have invested in Bitcoin in the last cycle and now want to spend that wealth in different ways. “
He noted that BitPay-enabled commerce spans everything from auto and yacht dealers to home purchases to charities.
In trying to “monetize” Bitcoin, people find that their most valuable holdings are also the least liquid – and they may want to feed those profits into real-world trading. If BitPay didn’t exist, people would have to put their bitcoin – or really any crypto – on an exchange that sell crypto, withdraw it to a bank account (in fiat), and then do the transaction. In other examples, people with investment accounts can transfer money to Charles Schwab, with debit accounts that can be used to make purchases.
However, Bitcoin is expensive to use on these models.
“There can be network congestion and fees that can be as high as $ 5 to $ 10 to $ 20 per transaction,” he said.
This means that Bitcoin is currently not suitable for very low value transactions.
“But that doesn’t make it any less of a good payment instrument just because it costs more,” he said. (PayPal and others who provide Bitcoin as a payment method for merchants tend to agree.)
“The reality is, if you look at Bitcoin, it’s a digital commodity that makes this database called ‘Bitcoin’ work,” said Pair. “And the same goes for the other native cryptocurrencies: They create the incentive mechanism to secure this database and ensure that it is not compromised as a commodity. You have an offer, you have a demand, and then you have a price. If supply stays fixed, as it is with Bitcoin, supply is a known function and the price will fluctuate in response to changes in demand. “
There has been some debate about the mechanics of actually mining Bitcoin – and while the timing and cadence of production won’t change (it takes minutes to create the digital currencies), Pair noted that we may have more innovation in the See energy development and use (as in renewable energies) in view of the high consumption associated with crypto production.
“The $ 5 or $ 10 that someone has to pay to get a transaction on the blockchain is where the miners make all their money,” he said. “Depending on how valuable a Bitcoin transaction is to someone … how important it is for them to include this transaction in this database, they pay more or less depending on the situation. Energy consumption will be a direct reflection of the value people are getting from creating these transactions on the Bitcoin blockchain. “
No dollar threat
With regard to Bitcoin as a store of value and a unit of currency, Pair was quick to point out that Bitcoin is not intended to compete against the dollar.
In contrast to Bitcoin, however, the dollar – in terms of supply – is not fixed. It is controlled by the Federal Reserve. The Fed’s overall goal is different and focuses on maintaining a stable price for the dollar. The Fed will change the offer to keep prices stable for long periods of time. Currencies are an important financial tool for governments, he said, and they just won’t “go away”. He added that companies that want to conduct their accounting in denominated international currency will want to conduct transactions in the same currencies as it simplifies the process.
BitPay does something similar for its corporate customers: “We allow them to allow their customers to pay in cryptocurrency, but we manage the entire conversion into their local currency. Whether it’s dollars, euros, or any other currency, the company doesn’t need to include bitcoin on its balance sheet. “
It is a valuable mechanism for cross-border transactions, he said.
Beyond the cryptos themselves, however, he found that the blockchain – the block-by-block list of immutable records – enables the tokenization of many things, from cryptos to dollars to potential Apple stocks.
“Companies will be spending their equity in blockchain form on a blockchain, and that can prevent things like the one you saw at GameStop from being sold naked,” he said.
There’s no reason BitPay couldn’t make it possible for inventory to be used to purchase goods or services across the blockchain, or to pay a bill.
Bitcoin in 2021 and beyond
Bitcoin recently hit the $ 50,000 milestone. When asked by Webster where the price could go, Pair said the most obvious use case for the Bitcoin blockchain is a store of value.
“If you look at the value of all the gold in the world (ie, the gold above ground) that people use as a store of value … if Bitcoin is as widely accepted as gold for this use case, then the applied value Bitcoin is approximately $ 300,000” said Pair. “But that’s not the only use case for Bitcoin.”
He pointed to ID initiatives such as those being developed by companies like Microsoft, where Bitcoin’s blockchain could become the basis for a modern internet based solely on blockchains. In that case, Bitcoin’s value would be significantly higher than $ 300,000, he said.
As for the direction we are going this year, it may not be on the cards that banks are suddenly wholeheartedly accepting cryptos. Part of this is due to a technological heavy load.
“If you know how long it takes to update software,” he said of the banks, “I wouldn’t expect a lot of things to happen in a very short time.” But I think that’s where companies like BitPay and other FinTechs come in – smaller companies that [are] faster and more innovative. And we will work with banks to do what they want, whether it is custody or allowing it, or to simplify connectivity with their bank accounts and hook up the blockchain. “
More companies will invest time and money in blockchain technologies, he said, along the lines of companies like JP Morgan Chase.
Overall, the blockchain represents a new type of database – and databases with all their consequences are becoming blockchain databases. The Bitcoin database, he said, has been around for more than a decade and it has never been compromised.
“The basic idea of having this database with a defined set of rules that you need to follow to change it and make it open for anyone to change is the future,” he said. “And it won’t just be payments.”
NEW PYMNTS DATA: BUY NOW, PAY LATER, CONSUMER STUDY
About: Buy Now, Pay Later: Millennials and the Changing Dynamics of Online Credit, a collaboration between PYMNTS and PayPal, explores the demand for new flexible credit options and the way consumers, especially in the millennial demographics, are paying online. The study is based on two surveys of nearly 15,000 US consumers.