On 8 October, cryptocurrency enthusiasts the world over rejoiced as Jack Dorsey’s payments company Square announced that it had purchased roughly $50m in bitcoin – worth approximately 1% of its total assets as of the end of the second quarter.
Only a few weeks earlier, Nasdaq-listed analytics company MicroStrategy revealed that it had upped its bitcoin holdings to $425m.
Industry experts are pointing to this as the start of a trend, one that may result in more and more corporate treasurers – whose job is to manage companies’ risk and liquidity – to park at least a portion of their assets in cryptocurrency, most likely bitcoin.
Cryptocurrency fans are also seeing some traction with consumers. PayPal announced that its customers can buy, hold and sell cryptocurrencies in their PayPal accounts. The company’s US customers will be able to store Bitcoin, Ethereum, Bitcoin Cash and Litecoin in their digital wallets within the next few weeks. Customers in some of PayPal’s other markets will be able to use cryptocurrencies next year.
Other advocates for cryptocurrencies, however, are trying not to get ahead of themselves.
“I think it has probably had a bigger impact on the institutional side. I don’t think you saw a huge change in the consumer side,” said Peter Smith, chief executive of cryptocurrency wallet and exchange business Blockchain.com.
Chris Tyrer, who runs fund management giant Fidelity’s digital assets arm in Europe, agreed that “people are maybe getting a little carried away”.
Fidelity’s digital assets business offers custody and trading products to institutional investors looking to get involved in the cryptocurrency market.
Tyrer pointed out that both Square and MicroStrategy are founder-led companies, and that those founders have the boardroom clout to take bold decisions – which ploughing a portion of the balance sheet into bitcoin certainly qualifies as.
He added, however, that the MicroStrategy purchase had “piqued interest in corporate boardrooms” and said he expects to see more of it.
The timing of this trend, if we can call it that, is also noteworthy.
Bitcoin, the original cryptocurrency, has displayed wild volatility in recent years. The onset of the Covid-19 crisis caused its price to approximately halve to less than $5,000 in a matter of weeks, but it has since recovered to around $11,500.
Yet in recent months, despite considerable turbulence in the market, bitcoin’s price has remained relatively steady.
On 1 October, the US Department of Justice and the Commodity Futures Trading Commission filed charges against BitMEX, accusing the derivatives exchange’s founders of operating an unregistered trading platform, as well as of violating anti-money laundering and know-your-customer rules.
Less than a week later, the Financial Conduct Authority, the City watchdog, banned the sale of cryptocurrency derivatives to retail investors.
What was most striking about the UK regulator’s decision – never mind the fact that the vast majority of respondents to its consultation on the matter opposed the ban – was its reasoning.
The FCA said in a statement on 6 October that it was banning cryptocurrency derivatives because consumers “cannot reliably assess the value and risks of derivatives and exchange traded notes that reference certain cryptoassets”. Why? Because the underlying assets – bitcoin, for example – “have no inherent value”.
Given bitcoin’s history, one might have expected news of alleged malpractice at a major exchange and a stark statement from one of the world’s foremost regulators coming within a week of each other to knock the market’s confidence. But this does not seem to have happened.
“Had [the BitMEX incident] happened in late 2016 or early 2017, I think that news might have had the market sell off 25%,” said Tyrer.
“I think that the fact that the market shrugged that off as easily as it did demonstrates two things: that the market is maturing… but also that the market is a lot more diverse in the number of venues that you can access liquidity.”
Further reading:
Sticking with the digital assets theme, The Block reports that Lombard Odier Investment Managers, the fund management arm of the 224-year-old bank, is betting on tokenisation with its new fintech fund.
As central banks plough ahead with efforts to develop cryptocurrencies of their own, Federal Reserve chair Jerome Powell has said it is more important for the US to “get it right than to be first”.
FN’s list of the most influential women in European finance, published earlier this week, features several names from the world of fintech.
HSBC’s former head of business finance and group general manager Ian Jenkins is set to join the Facebook-led Libra Association as chief financial officer and chief risk officer of Libra Networks.
In digital banking land, Monzo has debuted its second paid-for product: a metal card and premium card priced at a cool £180. But will it work? FN takes a look here.
Sifted reports that Revolut has nominated ex-Standard Chartered chief Richard Holmes to oversee its UK bank licence application.
Finally, card giant Visa has invested in Global Processing Services, an infrastructure firm that underpins many of the UK’s best-known digital banks.
To contact the author of this story with feedback or news, email Ryan Weeks
