When Tesla announced in February that it would accept bitcoin for its electric vehicles, the crypto world rejoiced. Here was a publicly traded company, fronted by a billionaire publicity machine, endorsing its status as a medium of exchange. The asset’s reputation as a store of value, meanwhile, was burnished on the markets as it soared to fresh all-time highs above $44,000.
Fast-forward a few months and it is a very different picture. Not only has Tesla reversed its decision to accept bitcoin payments, citing concerns about its energy usage, but the biggest cryptocurrency lost 30% of its value during Black Wednesday, once more underscoring its inherent volatility, and fuelling the views of those who consider it an unviable medium.
Despite the market fallout, there is plenty of evidence to indicate that cryptocurrencies and blockchain-based platforms will play a key role in the digital payments space moving forward.
The past year has seen the emergence of crypto-friendly challenger banks, the addition of digital assets to PayPal, increased stablecoin usage including the adoption of USDC by Visa, countless new lending opportunities, savings and borrowing products, and a preponderance of innovative solutions for frictionless cross-border transactions – and of course, everyone is awaiting news of Diem.
This is all before we get on to the topic of Central Bank Digital Currencies (CBDCs) which are being actively developed and piloted in China, and considered in the U.S., the U.K, and over 30 countries.
Traditional Banks Fighting Fires on Multiple Fronts
The banking sector retains a great deal of influence in the payment space, however, the old financial behemoths are no longer the only show in town and finding themselves flanked by fast-growing e-payment solutions like Monzo, Cash App, and Wirex, as well as crypto-native protocols, exchanges and apps.
Making payments solely through a bank account is starting to feel as anachronistic as conducting long-distance calls through a fixed land line telephone with the use of the operator to solicit who will pay the charges to connect the call.
‘Money is entering a format war’ according to Ronit Ghose of Citi in their latest Future of Money report, and this is creating challenges on numerous fronts for bankers. Just like the fixed line operators were challenged with mobile and content, banks are under attack from the likes of crypto innovators to central banks innovators with CBDCs, all of whom are seemingly seeking to reduce the role of or fully disintermediate traditional banks in the payments ecosystem.
Earlier this month, Canadian payments giant Nuvei Corporation agreed to acquire fintech firm Simplex in a deal worth $250…