Crypto 2020: One Step Up; Two Steps Back

If 2020 taught us anything about cryptocurrencies, it’s that they’ve reached a tipping point. Or maybe that cryptocurrencies have yet to go mainstream beyond the headlines because fraud still lurks.

It all depends on how you look at it — and where you look, of course. If one measures success for digital currencies in buzz — and in price appreciation for many of the marquee names — then 2020 stands out as a banner year. Here are some of cryptos’ key developments for 2020:

Bitcoin Goes Higher And Higher

Bitcoin, of course, exists as one of the most widely recognized cryptocurrencies. You might even consider it shorthand for the crypto space itself.

And one of the most notable events of 2020 was the big appreciation in bitcoin’s price, tied as it is (and was) to optimism about cryptos’ future.

As of this writing, bitcoin is trading for a bit more than $23,500, which marks a notable rocketing up from the value seen at the beginning of the year — a more than a tripling, in fact.

You might point to the fact that cryptos might be embraced as a hedge against other investment holdings — a hedge against inflation or even against geopolitical risk.

To be sure, the popularity of cryptos as part of a portfolio has seen some traction. “Staking a claim on bitcoin trading can pay off,” we wrote in this space recently.

Square, for example, said in its latest earnings report that revenue from bitcoin trading came to $1.6 billion, tied to activity facilitated through a trading feature in its Cash App. As reported, the company also said bought $50 million of bitcoin to hold on its balance sheet.

Investors, we noted, watch other investors and may bid prices higher — in expectations that prices will go, well, higher.

Building The (Retail) Use Cases

Part of the enthusiasm from investors comes as use cases have proliferated.

Jeremy Allaire, CEO of financial technology firm Circle, told PYMNTS that digital currencies are ready to transition from speculation to become more broadly adopted in everyday commerce. 

“The biggest problem was they are highly volatile and really still are because they are more like commodities that people are trading,” he noted to PYMNTS.

Part of that “priming the pump” (that’s our term) for mainstream acceptance involves giving banks at least some stake in conducting traditional financial activities.

Over the summer, the U.S. Office of the Comptroller of the Currency announced that banks could hold reserves on behalf of customers who issue stablecoins — which are, of course, a form of crypto but are pegged to an underlying asset such as a dollar.

Said Allaire of the bid to get digital currencies more front and center: “Regulators are getting their arms around them … the digital asset market is now moving, more and more, into the mainstream of finance, FinTech payments and banking world.”

And, of course, the crypto landscape extends well beyond bitcoin. PayPal and Visa have been among the firms that made a splash this past year in bringing crypto more mainstream.

PayPal announced recently that its 350 million users could deposit bitcoin and other cryptocurrencies in their accounts and spend it at 26 million merchants beginning in 2021. Meanwhile, Visa said that crypto-banking platform operator Ternio had joined the payments giant’s Fast Track program as a cryptocurrency-focused enablement partner. At a high level, that means helping crypto companies and FinTechs come to market with crypto payments across the Visa rails.

Ternio CEO Daniel Gouldman told Karen Webster that PayPal’s endorsement is a major step in crypto’s quest to go mainstream.

“PayPal has basically just said, ‘Hey, we're going to open this up to everybody,’” Gouldman said. “Bitcoin is like a [crypto] 101 version. It's made for Grandma, so no one — my kid, Grandma — can mess it up with PayPal.”

Dollars Done Digitally

Blockchain is taking root as the underlying infrastructure of digital currency issuance, and a broad swath of central banks are examining issuing digital fiat.

Of course, it’ll take some time to get there if we do. For now, simply exploring the feasibility of digital fiat is top of mind.

The Federal Reserve said this year that its Boston bank is working with the Massachusetts Institute of Technology (MIT) to explore the possibility of issuing digital currency.

Jim Cunha, senior vice president, secure payments and fintech at the Federal Reserve Bank of Boston, told Karen Webster that “this is about experimenting for the purposes of educating ourselves and making sure that we really understand what the fundamental technology can do.  It’s not about going to production.”

But he added that eventual use cases could include stimulus payments and all manner of other transactions.

“Anywhere where you have a cash transaction can be a possible use case,” Cunha said.

Keeping An Eye On Fraud

But as with any nascent payments technology, the bad guys are always lurking – especially with cryptos, where anonymity is prized.

The U.S. Department of Justice said in a report that rogue nations and other risks loom as exchanges are lightly (or not at all) regulated for cryptocurrency trading.

A U.S. Attorney General’s Cyber-Digital Task Force report titled “Cryptocurrency Enforcement Framework” noted that “cryptocurrency is increasingly used to buy and sell lethal drugs on the dark web (and by drug cartels seeking to launder their profits).”

The authors added that “rogue states like Russia, Iran and North Korea may turn to cryptocurrency to fund cyberattacks, blunt the impact of U.S. and international sanctions, and decrease America’s influence in the global marketplace. And, while terrorist use of cryptocurrency is still evolving, certain terrorist groups have solicited cryptocurrency donations running into the millions of dollars via online social media campaigns.”

Dr. Justine Walker, head of global sanctions and risk at The Association of Certified Anti-Money Laundering Specialists (ACAMS), told Karen Webster that geopolitical risks linger.

“With sanctions correlation, the focus on crypto will increase,” she said. There are still myriad touchpoints in the crypto landscape, and “you lose visibility within the first mile, let alone worrying about the last-mile distribution,” Walker said.

Still, a new year dawns. And of course, so does a new chapter for bitcoin and its brethren.