February 8, 2023

Spotlight On Cryptocurrency For Business: Here To Stay Or Just A Fad?

Cryptocurrency is making a lot of headway in the business finance sector. Find out what’s driving this trend and what this means for businesses.

A growing number of companies around the globe are starting to use digital currencies for business investments, transactions, and operations. It’s one of the hottest and potentially disruptive fintech trends today. According to industry stats compiled by Zippia, about 15,174 businesses worldwide support bitcoin transactions, 2,300 of which operate in the US. And that’s excluding the over 36,000 bitcoin ATMs in the country. The US is a hotspot for crypto transactions, with over $1 million worth of bitcoin spent daily on goods and services.

Crypto is clearly rivaling the use of conventional currency in business and redefining the nature of currency itself. But is it a good idea to incorporate crypto into business finance? Well, let’s find out by looking at the drivers and advantages behind crypto usage in business:

Disruptive cryptocurrency trends

For the first time in many years, crypto is showing real promise as a payment, investment, and banking solution for business. Let’s explore the main trends pushing crypto commercialization and shaping the future of cryptocurrency in business:

Mass acceptance and adoption of cryptocurrency

Research by crypto.com shows that global crypto ownership grew by 39% in 2022, hitting a new milestone of 425 million. Similarly, Chainanalysis reports strong crypto adoption figures worldwide. Analysts expect this trend to continue in the coming years.

Image by: crypto.com

Besides growing crypto ownership, more and more businesses are accepting and even encouraging crypto payments on their e-commerce platforms. In a 2022 Deloitte survey, 75% of US senior executives at retail organizations reported plans to integrate crypto payments within the next two years. On top of that, 85% of the respondents said they believed digital currency would become ubiquitous in their industry in just five years.

Additionally, some major players in the fintech sector are keen to facilitate crypto-based transactions and even financing. For instance, Mastercard recently introduced Crypto Source, a new fintech program to enable financial institutions to provide crypto capabilities to their customers. And since June 2022, US PayPal users can transfer, send, and receive select cryptocurrencies via their PayPal accounts.

Growing interest in Central Bank Digital Currencies (CBDCs)

CBDCs are digital tokens issued and controlled by a country’s central bank. They are a form of digital currency whose value is equivalent to the country’s fiat currency. Think of CBDC as a stablecoin with national legal tender status.

Getting the government so closely involved seemingly defeats the purpose of a cryptocurrency. But a CBDC aims to improve funds accessibility, security, and transferability when making payments and other transactions. It also simplifies cross-border transfers while eliminating the inherent volatility of digital currencies.

According to the Atlantic Council’s Central Bank Digital Currency Tracker, 11 countries have already launched CBDCs, while many others are actively exploring and experimenting with the idea. The US Federal Reserve is still weighing the pros and cons of introducing a digital currency for the masses.

The growth of decentralized finance (DeFi)/blockchain banking

DeFi is an emerging financial model that uses secure distributed ledgers like those that power cryptocurrency processes.

In traditional centralized finance, the money is held and controlled from a central location (bank) and relies on multiple third parties (brokers, credit card networks, payment services, etc.) to move it around. On the other hand, a decentralized financial system eliminates all the intermediaries, allowing users to transact through peer-to-peer financial networks. DeFi systems run on distributed apps (DApps) that write on immutable blockchains using smart contracts.

Distributed peer-to-peer exchanges are safer, cheaper, faster, and more accessible than centralized financial systems. DeFi users, including businesses, can enjoy highly personalized financial services such as closely matched loans and payment options right at their fingertips.

Blockchain banking is quickly gaining traction in the financial industry. For instance, Wells Fargo and HSBC recently began using blockchain technology to facilitate foreign exchange transactions and global transfers. J.P. Morgan also took a similar route to streamline cross-border payments.

Images by Loanspark

Crypto as a business investment

The idea of institutions investing in crypto seemed ridiculous for a long time. But today, many investors see cryptocurrencies, both volatile and stable varieties, as welcome investment assets to expand and diversify their portfolios.

In the words of MicroStrategy’s co-founder Michael Saylor, “The only real safe haven for an institutional investor is bitcoin.” Michael remains a firm believer in crypto investments even after his company’s bitcoin holdings lost $1.3 billion in 2022. MicroStrategy has accumulated 132,500 bitcoins since 2020 as part of its aggressive investment move to convert all its cash to crypto. And it’s not alone either. Other giant companies, such as Tesla Inc., Galaxy Digital, and Coinbase Inc, have billions worth of bitcoins stashed away as investment holdings.

Some investors also view crypto as “digital gold” (a store of value) and a potential hedge against inflation and government-controlled fiat currencies. Additionally, there are many exciting new investment opportunities in cryptocurrency, including non-fungible tokens (NFTs) and crypto exchange-traded funds (ETF).

Mounting regulations around cryptocurrencies

In 2021, cryptocurrencies were mentioned for the first time in US law in the infrastructure investment and jobs act.

For starters, the act defines cryptocurrency as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.” Second, it specifies how entities should report digital assets and securities to the IRS. The act also defines the tax responsibilities of a crypto broker, who, in this case, is anyone selling or buying digital assets on behalf of someone else.

Many other laws are coming into the scene, particularly concerning identity, security, and taxation when trading or investing in cryptocurrencies.

The point is, financial legislation in the US, like in many other parts of the world, is slowly catching up with the crypto business. Bringing clarity to the regulations surrounding digital assets instills confidence in investors and entrepreneurs looking to dip their toes in the cryptocurrency waters.

Images by Loanspark

Should you consider crypto for your business?

Fully cryptocurrency banking for business is still a long way off. But crypto undoubtedly has a bright future as a commercial payment and investment solution. In fact, given the prevailing crypto trends, that future is now.

Here are five reasons why you should look into cryptocurrency for your business:

  • Low transaction fees – Without a long chain of intermediaries, cryptocurrency payments cost much less than typical bank transfers, especially when dealing with international customers.
  • Safe transactions – Crypto’s decentralized nature protects merchants against fraudulent chargebacks and reverse charges.
  • Access to a larger audience – Accepting cryptocurrencies opens your business to new demographic groups and market segments.
  • Access to financing – Crypto may enable you to access pools of tokenized business capital and unique classes of investment assets.
  • Convenient transactions – Blockchain banking makes for fast real-time transactions anywhere on the globe.

The main downside of using cryptocurrency is the coins' volatile nature. But you can mitigate this risk by working exclusively with stablecoins, cryptocurrencies pegged to a more “stable” reference such as the US dollar. But all in all, evaluate the amount of risk your company can comfortably take before delving into cryptocurrency, especially when it comes to EFTs and holding investments.

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Today's fintech industry is awash with lucrative business opportunities; crypto is just one of them. Another goldmine you should consider is embedded funding. This is where B2B companies offer credit solutions to their customers. Embedded funding positions you as a hero in your business community by enabling your customers to access much-needed funds. Moreover, you earn extra revenue through interest and fees.

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Get in touch with us to start leveraging the newest fintech trends.

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