Visa Cryptocurrency

Crypto is suddenly everywhere — except in the cash register

Crypto is suddenly everywhere — except in the cash register
Written by publishing team

Billionaire CEO Michael Saylor has described Bitcoin as the “essential invention of the human race.” Its website describes it as a “bank in cyberspace” that offers “a simple and secure savings account for billions of people.” He recently claimed ownership of 17,732 bitcoins worth about $740 million.

But the one thing Saylor can’t do with bitcoin is pay for an $18 shrimp cocktail at Tony and Joe’s Seafood Place several floors below his waterfront penthouse in Georgetown, Washington. Although Tony and Joe’s have an ATM that can transfer cash to Bitcoin, the restaurant will not accept it.

“I was going to get the Monopoly money before I took the cryptocurrency,” said one manager, who declined to be named.

Nearly 30,000 Bitcoin ATMs now dot the American scene at gas stations, liquor stores and hair salons, up from 1,800 four years ago. About half of the 17,000 Coinstar-based Bellevue booths that convert coins into cash sell bitcoin. Consumers have a growing range of options to buy, sell and transfer digital currency, including popular payment apps like Venmo and Cash App.

Culturally, the cryptocurrency is preparing for an even bigger spread everywhere: Last month, the Staples Center in Los Angeles was renamed the Arena in a $700 million deal by a Singapore-based cryptocurrency exchange. Miami Heat is now playing at the FTX Arena, which is named after another crypto exchange. Both companies plan to air ads during the Super Bowl next month.

But despite all the hype, there is scant evidence that cryptocurrencies are standing on the cusp of some sort of mainstream penetration. While a recent Pew Research Center survey found that 16% of Americans have used cryptocurrency in some way, most buy it as a speculative investment, rather than for its original purpose — as a way to pay for goods and services.

“It just doesn’t happen,” said Dan Dolev, a fintech analyst at Mizuho Securities, about the idea that cryptocurrency is replacing cold hard cash. “I wouldn’t even try to quantify it because it’s so trivial. People buy cryptocurrencies because they think it can only go up. Or because they’ve heard it’s the future. Or because they don’t know why they are buying it.”

Within bitcoin, the original and still largest cryptocurrency, only a tenth of transactions amount to any “economically meaningful” activity, according to a study by the National Bureau of Economic Research in October. From this segment, the study concluded that traders who aim to buy low and sell high account for the vast majority of movements.

For some bitcoin proponents, that’s fine.

One of Bitcoin’s most vocal advocates, Saylor ranks among the Bitcoin “whales”, a super-rich class of investors who control a huge chunk of the asset. In addition to his personal belongings, Saylor’s software maker MicroStrategy invested its reserves in bitcoin and borrowed to buy more; It now owns approximately $5.2 billion in digital currency.

In fact, the largest 10,000 individual bitcoin investors own nearly a third of all digital tokens in circulation, NBER research found, a greater concentration of wealth compared to dollars among the wealthiest American households. In the second quarter of last year, transactions over $10 million accounted for more than 60% of the activity in the growing decentralized finance market, the crypto-enabled alternative to traditional financial services, according to a report by Chainalysis.

As the global cryptocurrency market has exploded in value — tripling in the past year from $774 billion to $2.2 trillion, according to CoinMarketcap — it has attracted a wider segment of the population. The 1 in 6 Americans who reported having invested, traded or used cryptocurrency represented an increase from 2015, when only 1% reported their involvement, according to the Pew Center.

Today’s group of investors is increasingly diverse. A survey conducted by NORC at the University of Chicago over the summer showed that 44% of those who bought or traded cryptocurrency in the past year were non-white, 41% were women and 35% had an annual household income of less than $60,000. The survey also found that the average participant was younger than 40 and did not have a college degree.

For some well-established companies looking to get involved in this action, this may be all the evidence they need of a future in digital money.

Jack Dorsey, CEO of Block, the co-founder of Twitter who recently quit the social media giant, predicts that Bitcoin will replace the dollar and become the world’s “single currency” within a decade. (Square, which provides e-commerce and banking services to sellers, announced in December that it was changing its name to Block.)

Block acts accordingly, allowing people to buy and sell digital currency through the Cash app. The company is also pursuing a number of initiatives focused on expanding the decentralized system on which bitcoin depends, an effort designed to “help bitcoin reach the mainstream audience,” Dorsey told analysts in the company’s last earnings call in November.

The batch starts from a humble place. The company said that Bitcoin transactions on the Cash App have grown over the past two years. But fees from cryptocurrency transactions made up less than 4% of the company’s total profits in the third quarter. The volume of bitcoin transactions on the platform halved from the first quarter of the year to the third quarter — a drop that Wolf Research analyst Darren Beller attributed to consumers feeling less influx after spending or investing stimulus money. Biller said that Bitcoin “has been very slow in getting adopted by consumers.”

More options for using crypto in everyday transactions may help. Payment giants Visa and Mastercard have announced partnerships with crypto companies that enable banks and merchants to provide customers with the ability to spend, invest, and earn rewards with digital currency.

But the path of encryption for wider consumer use is hardly a straight line. Major local retailers that played with bitcoin through their websites in 2014 gave up the option later when they failed to catch up with customers.

Meta, the parent company of Facebook, has faced its own challenges for its crypto ambitions. The social media giant has sought to become a digital payments giant in 2019, revealing plans to launch a cryptocurrency that will allow users to exchange money without transaction fees. But concern among federal regulators that the product could pose risks to the financial system has so far stymied the project. David Marcus, its CEO, left the company late last year.

Consumers committed to spending cryptocurrency have choices. Overstock, the online furniture retailer, has been accepting bitcoin since 2014. Other major national brands — including AT&T, Home Depot and Regal Cinemas — have partnered with crypto payment processing companies to give their customers that alternative. Some leading charities, including the American Red Cross and the National Kidney Foundation, note on their websites that they are now equipped to accept donated cryptocurrency.

Small businesses have been slower to follow suit. At Reiter’s Books, an independent bookstore across from the World Bank in downtown Washington, customers can browse the titles of blockchain technology on shelves and transfer cash to bitcoin at the store’s ATM. But owner Robert Nelson does not accept cryptocurrency as a form of payment. He says the customer has not yet used the encryption option on the ATM, which is owned and operated by a seller who gives him a portion of the transactions. “It’s all baffling,” Nelson said.

Although the practical value of cryptocurrencies remains in question, their huge gains as an investment asset have proven irresistible.

Top asset managers BlackRock, Fidelity, and Vanguard are investing in bitcoin mining, the power-intensive computing networks essential for verifying transactions on the decentralized network. Over the summer, ForUsAll, a small 401(k) provider, announced a partnership with Coinbase that would allow plan participants to invest up to 5% of their retirement funds in cryptocurrencies.

These moves have alarmed some academics who study cryptocurrency.

“My view is that cryptocurrency may be a good fit for some but certainly not all retail investors,” said Sarah Hammer, senior director of the Harris Family Alternative Investments Program at the University of Pennsylvania’s Wharton School. “One of the basic principles of investing is that as you approach retirement, your portfolio should be less volatile, so that you can count on it for your retirement income. So people have to be careful.”

The ongoing sell-off of top cryptocurrencies illustrates this point. Bitcoin is down around 40% since hitting an all-time high of around $69,000 two months ago; The ether declined by the same amount during that period. Bitcoin has a track record of volatility; Last year, its price halved from March to July before picking up in the fall.

But an ad on featuring actor Matt Damon sends a different message. After glorifying a series of adventurers throughout history, Damon gazes at a frightening red planet in outer space.

“Wealth favors the brave,” he says.

Rachel Lerman of the Washington Post contributed to this report.

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