This week, Yves Renno, our Head of Trading, looks back at the rise in the cryptomarkets following announcements from Mastercard and Tesla, and what this could mean for crypto moving further into the mainstream. He also explores what the future for crypto could like in Nigeria and India, following announcements from the governments that have expressed their scepticism towards cryptocurrencies.
data taken at 10:04 am 12/02/2021
The Bitcoin (BTC) price resumed its rise this week, and reached a new all-time-high at $49,000(source: Bitstamp). It is now quoting around the $47,400 levels. The first cryptocurrency soared 19.45% two days ago when Tesla announced that it bought $1.5bio worth of BTCs in their latest SEC filing. Tesla also stated that they “may acquire and hold digital assets from time to time or long-term”. This investment comes with a plan to “begin accepting bitcoin as a form of payment for their products in the near future”. The news boosted the cryptocurrency markets, sending the total crypto market capitalisation above the $1.4 trillion level. Major companies, including big techs, are now highlighted in the press as potential followers. If Paypal or Tesla stepped through, the main question is: which major company will make a similar announcement next?
- According to its CFO, Ned Segal, Twitter is “watching closely what other companies are doing”. It is “something they continue to study” for all operations, from salary to customer payments.
- The press reports that the Royal Bank of Canada (RBC) released a research report this week mentioning Apple’s “clear opportunity” to integrate cryptocurrency in its payment services:
“If Apple decides to enter into the crypto exchange business, RBC research thinks the firm could immediately gain market share and disrupt the industry”.
Historically, Apple has been very cautious with cryptocurrencies, banning wallet applications six years ago and then allowing them back in the App Store. Apple holds nearly $192bil in cash and liquid instruments as of the end of 2020. Investing 1% of it in Bitcoin represents roughly 42K BTCs at current price levels. This quantity alone is enough to cover the miners supply for months. Apple’s investment would definitely send Bitcoin above $50K and more…
- A cryptocurrency investment (with a plan!) by Amazon would drastically boost mainstream adoption. In the same sector, Overstock already paved the way for bitcoin payments years ago. There are clear challenges for online stores integration, including price volatility or refunds. Overstock currently refunds Bitcoins for the “full USD value of the order” to prevent any easy arbitrage opportunities: e.g. buying equipment for 0.5 BTCs at $47,000 and asking for a refund of 0.5 BTCs if the BTC price goes higher.
The existing integrations for online stores have a lot of friction (e.g third party provider fees) that hurt the user experience. Against the volatility risk, stablecoins might be more suited. However, in fine, and for the ultimate user experience, the full payment process should be completely integrated to the platform, the network and the company.
Mastercard witnessed the benefit of integration. It took major steps to allow such integration through its partnerships with Wirex and Bitpay. It observed the stunning retail market growth in the past few months, and decided to “start supporting select cryptocurrencies directly on its network”. We are a long way from Paypal, Mastercard or VISA joining the controlling and centralised Libra project back in June 2019. These companies showed commitment to engage in cryptocurrencies. Although large companies don’t always understand the benefit of community-centered cryptocurrency(ies), at least they understand growth, and they want to be part of it. After all, the country with the largest cryptocurrency holdings is the United States. And the United States represents their most predominant market share. It turns out that it is also on top of the list of countries where cryptocurrencies are legal. With a legal framework evolving in the right direction, institutions are more comfortable today to embrace this young market, adding value to it through their proven regulatory layers and their wider network.
On the other hand, some emerging countries are aggressively trying to control the cryptocurrency flow. The Central Bank of Nigeria (CBN) ordered banks and other financial institutions to “Identify persons and/or entities transacting in or operating crypto currency exchanges (…) and ensure that such accounts are closed immediately ”. The circular could curb the cryptocurrency growth in the most trending countries in 2020. Nigerians could still choose to decentralise their exchanges even further, go peer-to-peer, phone-to-phone! The mobile phone market in Nigeria is expected to triple in the next five to six years, and there are more internet users in Nigeria than Japan. It will be interesting to see how Nigerians will adapt to these restrictions. After all, cryptocurrencies are meant to contribute to financial inclusion, and the world bank estimates that two thirds of the unbanked have a mobile phone with internet. What is true for Nigeria is also true for India where the estimated number of internet users is 560mil.
The Indian government is also considering a complete ban on cryptocurrencies. It is also planning for the creation of a Central Bank Digital Currency (CBDC). Countries like China and India are not really implementing CBDCs to “improve financial market infrastructure”. They are most likely doing it for financial inclusion with an objective of complete control. This is in line with India’s demonetisation policy and its government’s dream to integrate everyone in a centralised financial system. Within this new CBDC blockchain infrastructure, every wallet holder will be clearly identified, and every transaction will be tracked and monitored by the Central Bank. We are far from Satoshi’s vision: freedom to transact on a peer-to-peer level. Although it is also important to fight money laundering and criminal activities, seeking the right balance is a difficult exercise, but an exercise that could be worth more than $1.4 trillion dollars (aka the crypto total market cap).
The Ether (ETH) price is also growing alongside BTC, as its price printed a new ATH at $1,839 two days ago. The ETH price soared 8.5% on Monday, the same day the Chicago Mercantile Exchange (CME) launched its new market for ETH futures. Close to $33mil worth of futures were exchanged that day on the exchange. The volume is roughly half the volume exchanged on the Bitcoin futures launch date, and it is still far from the $2.5bil traded yesterday on the BTC futures market. Still, the interest has decisively been confirmed, and volumes are expected to grow over the next two years, like they did for the main cryptocurrency since December 2017.
Written by: Yves Renno, Head of Trading at Wirex