Martin Baker explores how the Coronavirus pandemic has hastened the rise and demise of digital and physical currencies
Cash – mucky, grubby, hand-held money – is dead, or at the very least tottering on very unsteady feet.
Former Goldman Sachs financier Ed Knight, now a partner at investment company Antler, put it this way recently in AltFi: “Already underway for some time, the death of cash has been expedited by COVID-19, primarily due to its acquired status as a transmitter of disease. The share prices of payments businesses have reflected this bonanza with PayPal alone worth close to the market capitalisation of the entire European banking sector.”
So if cash is kaput, long live… what, exactly?
The first part of the answer is banal enough and exactly what you’d expect if your retail experience these past few months is anything like mine – plastic of the credit and debit variety.
“There has been significant interest and growth in regards to contactless card usage”, alongside a huge uplift in online shopping, according to a recent study cited in The Payments Journal.
The second part of the answer is that cryptocurrency may be the new money, set to replace the old – but that depends, at least in part, on your tolerance for hype.
Bitcoin, the inescapably prominent cryptocurrency, has become the digital equivalent of a World War Two American GI following a series of high-profile endorsements of the currency as a tradable asset by widely disparate enthusiasts. Bitcoin is over-sexed, overpaid and over here.
Least flamboyant, but probably most significant amongst these Bitcoin champions, is PayPal, which announced in late December that account holders in the US “will be able to buy, hold, and sell cryptocurrencies, including Bitcoin, Ethereum, Bitcoin Cash, and Litecoin, within the PayPal digital wallet”.
While the acceptance of these currencies as tradable assets has benefited PayPal’s business and the currencies themselves, there has been sharp criticism of PayPal’s attempts to control the way in which trading is conducted – only allowing users to purchase cryptocurrencies on the PayPal platform and refusing to accept the transfer of holdings of digital wallets to the PayPal system. Indeed, this is seen as fundamentally incompatible with the ethos of cryptoland.
Peter Smith, CEO of Blockchain.com, recently told The Fintech Times: “PayPal’s decision is highly centralised and inflexible… Crypto is about financial freedom. It’s modern money that anyone anywhere can truly control. While we’re excited to see a new audience gain access, a non-custodial approach limits opportunity to self-custody your crypto or transact freely.”
Then we enter territory where financial sense meets – and here I’m being charitable – out-and-out showmanship.
Elon Musk, entrepreneur and founder of car manufacturer Tesla, had been censured by US regulatory authorities for his tweets about Tesla’s share price. Then came news of one of the most extraordinary Treasury-management decisions of recent times, with a huge commitment of spare cash to Bitcoin, the value of which “jumped nearly 50% in the weeks after Tesla revealed it had purchased $1.5 billion of the currency and planned to accept it as payment”, as the BBC reported in late February.
What followed was a typical set of wild fluctuations – as both Tesla stock and Bitcoin’s price moved up and down like the proverbial vicar’s nightshirt.
Musk’s hype continues in an uncontrollable and hilarious manner. He had previously opined on Twitter that Dogecoin, originally conceived as a joke, was “going to the Moon”. On 24 February, he superimposed the word “Wow” on an image of a Dogecoin token, which has no value in a financial sense nor any real meaning – but people like to look at images rather than strings of code. The currency immediately rose by 25%.
Musk is clearly having…