Bitcoin has a big opportunity in payments despite the sharp drop in 2022

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Investors are constantly reminded that despite the myriad of crypto coins, projects, and innovations, bitcoin may be the only “safe” crypto asset to buy. It comes with a big asterisk, though. Bitcoin price is down more than 60% on the year and volatility remains a key feature of the asset. More importantly, how to value it remains a mystery to many investors eyeing negative returns and the cryptocurrency certainly hasn’t convinced people of its potential as an inflation hedge this year. While many have abandoned the original vision of bitcoin as digital money largely due to volatility, some investors and developers are still optimistic about its potential to improve financial transactions. “Similarly, dot coms were the form of the future in 1999,” said Mike Brock, who runs Block’s TBD business. “It was still filled with foam, vaporware and nonsensical speculation. We see the same thing here and a lot of people are getting hurt.” At this point, investors remaining in the crypto market after the recent FTX explosion are focusing their attention on the utility that crypto can provide rather than how they can ride the wave in hype cycles. speculative assets. Payments are one way to use bitcoin. “Trading and leverage isn’t exactly a blue chip financial issue,” said Lyn Alden, founder of macro firm Lyn Alden InvestmentStrategy. “The biggest problem overall is that globally a lot of people don’t have access to savings, they don’t have access to good payments. It’s a total addressable market a lot bigger and basically what bitcoin and stablecoins are going to solve.” Brock added that market scum “is still irrelevant to the long-term success of these technologies. At a fundamental level, they unlock value and they will provide more capital efficiency in markets going forward. ‘coming”. Block has said little about TBD, which focuses on cryptocurrency and decentralized finance, since CEO Jack Dorsey announced the idea in the summer of 2021. Rather than putting energy into building another crypto exchange, TBD is focused on creating a cross-border money transfer product, according to Broc. Investors had a chuckle in 2021 after Tesla announced it would accept bitcoin from customers as payment for its electric vehicles, then reversed its decision soon after as crypto prices plummeted. And although Tesla did not credit the volatility for its reversal, many observers saw it as proof that belief in bitcoin’s payment capabilities was misguided. Bitcoin’s price fluctuations are irrelevant, however, according to Brock. “The price of bitcoin on any given day as a funds transfer vehicle has no effect on us,” he said. “Whether the prize is $500 or $100,000, the system works the same.” “Bitcoin enjoys a huge premium today that comes largely from speculation,” he added. “I think the long-term value of bitcoin will increase due to the growing utility on the network as it is increasingly used to power things like international remittances. [and] to secure other types of transactions such as the digital identity work that we perform. Bitcoin has a fixed supply cap of 21 million coins. Targeted investors may not be buying bitcoin’s big drop just yet. Instead, they can hold on to their assets as concerns ease by its fixed supply, growing demand, and anticipation of long-term returns. Global Demand When Russia launched the first war against Ukraine earlier this year, observers and crypto-skeptics got a glimpse of the bitcoin’s potential to serve people where the formal financial system cannot or does not Many have turned to crypto to protect their money Ukraine has also received many payments and donations made in cryptocurrency amid reports of bank runs and empty ATMs.” It’s not buying coffee at Starbucks, so it may not relate to your average American, but it’s a real use case “, Brock said. Block is not alone in having confidence in Bitcoin’s payout potential. The group that operates the Lightning Network, a payment protocol based on the Bitcoin network, is committed to making payments on the Bitcoin network even faster, cheaper, and more easily confirmed than transactions made directly on the Bitcoin blockchain. Strike, which offers a bitcoin buying and selling service, is also developing services around remittances, micropayments, tips, and payments to bitcoin merchants and peers. Earlier this month at the AfroBitcoin conference, Strike announced a partnership with a company called Bitnob that aims to use Bitcoin’s Lightning Network to improve transfer payments to Africa. “It’s really strange that people have rejected this feature of Bitcoin,” said Alex Gladstein, director of strategy at the Human Rights Foundation. “The ability to send value from one place to another is one of its most important characteristics and it’s something that’s emerging around the world in a really, really big way.” “The existing international financial system is authoritative, closed, exclusive and often colonial,” he added. “Users in country A very rarely can talk to users in country B very easily. There are a lot of fees involved in transferring money around the world. of all inter-African flows pass through an American or European company.” Bitcoin has also been a lifeline for other groups marginalized or underserved by financial institutions such as sex workers, Lebanese freelancers struggling with hyperinflation and unable to access their bank accounts, and Afghans. suffering from a nationwide cash shortage. And while different from consumer payments, a company called Stacks is so optimistic about Bitcoin’s transaction capabilities, it’s building a layer of smart contracts for DeFi, NFT, and other decentralized applications on top of Bitcoin. Executing trades in the United States, Tyrone Ross Jr., president and founder of financial planning firm 401 Financial, said that while investors can certainly view bitcoin as a store of value, he is most optimistic about crypto infrastructure games like Block’s TBD initiatives. Paying for things with bitcoin is probably unwise in the United States because the transactions are taxable, he said, but bitcoin fills a need for people who have been diverted from the formal financial system. Ross called it “the one compelling use case” and said it has been “obscured” so far by online crypto casino culture. The Federal Reserve’s report on the economic well-being of American households published this spring reinforces the argument. It showed that low-income adults (with less than $25,000 annual income) are more likely to use cryptocurrencies for trading rather than investing. Crypto investors, on the other hand, had “disproportionately high incomes, almost always had a traditional banking relationship, and generally had other retirement savings.” Some 46% had an income of $100,000 or more. Zooming out, 11% of adults in 2021 held cryptocurrency as an investment, while 2% said they had used cryptocurrency to buy something or make a payment in the previous 12 months. Another 1% said they used crypto to send money to friends or family. It’s a small pocket of the United States using bitcoin for payments, but bitcoin doesn’t need 100% of the world’s population on the network to be successful, according to Oppenheimer analyst Owen Lau. “If 5% of the whole population believes in money or the price will go up, it will inevitably exist,” he said. “The market price is determined by the marginal investment, not the initial investment. So if you still have a small group of people who like that as a class, you still have people who trade bitcoins and in come out.” Brock said he believes bitcoin will become seen as a safe haven “around the world” as it gains utility in remittances and as a hedge against inflation (“not today, obviously”) . This does not necessarily mean that it will replace the dollar in people’s daily lives. In fact, debating the possibility is another way many investors miss the point, he said. “Will bitcoin be a way to pay for your Starbucks coffee next year, five years from now, 10 years from now? Probably not,” he said. “My belief in bitcoin’s ability to create a better financial system does not depend on the dollar failing.”

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