What next for enterprise and crypto?

Given the volatility of cryptocurrency, which saw its total market value plunge from $3trn in November 2021 to $1.3trn this May, is there still an appetite for exploring the potential business case for virtual currency usage among enterprises? And what are the main use cases likely to be?

Most of the activity in this area, up until now, has involved using crypto speculatively for investment purposes – which, according to one Fortune Business Insight report published last September, accounts for the majority (45%) of business end usage.

While now might not be the best time to invest in a largely unregulated market (more of which later), as late as February this year Gartner was predicting that 20% of large organisations will have adopted digital currencies for payments and stored value by the end of 2024, driven by the search for higher yields.

This investment makes up of both Central Bank Digital Currencies (CBDCs), which are government-backed and pegged to the value of a local currency, as well as cryptocurrencies, such as bitcoin and stable coins which fluctuate in price.

According to Gartner IT consultancy, while less than 1% of large organisations are using these currencies, the next two years will see this rocket as organisations seek higher returns on stored value and as a hedge against inflation.

As one indicator, the world’s largest asset manager BlackRock, confirmed to shareholders back in March that it is currently exploring how best to serve clients around digital currencies.

In a letter to shareholders BlackRock CEO Larry Fink also predicted that the Russia Ukraine conflict would push countries to reassess currency dependencies and look to means of payments that can bring down the costs of cross-border transactions.

Juniper Research confirms that using virtual currencies for cross border remittances is a growing use case and has predicted that banks will reduce the costs of cross-border payments by $10bn in 2030, through use of blockchain technology.

Crypto as payment

Beyond asset management, there are currently just over 15,000 businesses that currently accept the cryptocurrency bitcoin, or that offer bitcoin ATMs around the world, according to coinmap.org.

Business funding platform Fundera meanwhile estimates that around 2,300 US businesses accept bitcoin – and it’s even made a master list of them.

Well-publicised cases of firms embracing crypto payments meanwhile, include office space provider WeWork, At&T and travel booking platform Expedia.

Online auction giant eBay is also reportedly exploring its usage (along with NFTs) “for the near future” – according to its CEO Jamie Iannone.

Cryptocurrency as a payment method was also given a boost by Visa last year when the payments network became the first major one to settle transactions in dollar denominated stablecoin (USDC), which the company claimed was a major step into bringing crypto into the payments and commerce mainstream.

But given the volatility of the currency, why are such well-known brands starting to take the plunge?

One incentive could be that crypto could supply access to new demographics. A recent study by bitcoin service provider BitPay found that up to 40% of customers who pay with crypto are new customers of the company, and their purchase amounts are twice those of credit card users.

According to research by digital payment giant Checkout.com, crypto is increasing in popularity among millennials with 40% of consumers aged between 18 and 35 planning to pay using crypto in 2022.

In early 2022, Checkout surveyed 3,000 businesses and 30,000 consumers worldwide to examine the use of cryptocurrency in payments today and the key implications of this shift for merchant businesses.

The research found a fair percentage of senior executives were open to the idea of using digital coins: 36% of CFOs and treasurers said that they would like to settle some of their payments in stablecoins.

The study also found that 77% of businesses that do accept digital currency are iterating and experimenting with different coins to see which has the most benefits in attracting more customers and operational efficiency.

Interestingly, from a consumer perspective, Checkout found that while half of all consumers it surveyed were aware that all forms of crypto were risky, 39% of them thought that they should be used for payments and not just investment. So, it appears that while many of these younger consumers are aware of the risks, and don’t mind taking them.

For its part, Checkout is putting its virtual money where its research says, announcing this week that it is jumping into crypto by accepting stablecoin USDC payments through a partnership with crypto security firm Fireblock.

This move follows hot-on-the heels of its rivals Stripe, while PayPal this week extended its two year old crypto platform offering, by giving users the ability to conduct external wallet transfers.

Crypt-oh no

But back now the elephant in the room. The cryptocrash in May this year which exposed some of the weaknesses in a not-so-stable coin, Terra USD.

The crash was triggered by a broader slump as inflation forced central banks to tighten monetary policy, which triggered a sell off of risker assets. This in turn exposed some glaring weaknesses in the crypto market.

Many stable coins are pegged to safe digital assets that maintain a stable value – most commonly a fiat currency such as the US Dollar. Both USDT and its fellow stablecoin USD Coin follow this model.

Another stablecoin,Terra USD (UST)  however, uses an “algorithmic”  computer program with nothing but code to back up its supply: In the TerraUSD system, a special crypto token called luna is used to help UST hold its 1-to-1 peg value with the US dollar.

On paper, users could redeem $1 of terra for $1 worth of another cryptocurrency, luna, which would be issued to meet demand. But luna’s price began to slide in early May, putting pressure on the terra peg.

There was a rush to redeem and as luna’s supply grew, it’s price collapsed. At its peak, luna was worth $40bn and supported $18bn of terra. Now it is worthless, and last month terra was trading at 10 cents.

To prevent this from happening again there have been calls for more regulation: in its research Checkout.com listed lack of regulation as the number one reason for not offering crypto as a payment method.

Investors are also losing confidence in stablecoins like Tether, the market’s biggest stable coin, which has been fined in the past by New York’s attorney-general for misleading investors and refusing to reveal the precise asset mix of its backing.

There are calls now for stablecoins to be forced to disclose their backing—what the assets are, where they are held and who controls them.

A lack of regulation has also led to wide-scale fraud which is harming consumer confidence: According to the Federal Trade Commission cryptocurrency fraud cost investors $750m in 2021 – compare this to credit-card fraud – which accounted for much less, at $181m.

At this stage, it feels like enterprises are more likely to explore proof of concept models around trading, cross border payments and in retail to attract new customer bases.

Businesses will continue to experiment with different coins to see what works for them, supported by the fact that all the major online payment systems are now committed to some forms of the currency.

But while there may be gains to be made, the cryptocurrency market is almost entirely unregulated: last month the exchange platform Coinbase admitted that its customers would be unprotected if it went bankrupt – and this needs to change before crypto ever enjoys large-scale use in enterprise.