How Crypto Adoption by Companies like Visa, PayPal, and Tesla is creating a network effect

Amid the cryptocurrency market surge of the past six months, the consensus narrative is that unlike in 2017, when bitcoin mania was driven by retail investors and hype, this cycle is about institutional investment.

What people mean when they talk about institutions, in this context, is Wall Street investment firms. And indeed, a slew of well-known firms like Ark Invest have poured into crypto investment vehicles like the Grayscale Bitcoin Trust (GBTC), and a parade of influential hedge fund heads like Paul Tudor JonesStan Druckenmiller, and Bill Miller have bought into bitcoin.

But the institutions that may prove most pivotal to broad crypto adoption are the publicly traded tech and payments companies that are now finally warming to crypto.

PayPal’s announcement last October that it would add crypto buying to its wallet in Q4 2020 was an accelerant to a bitcoin bull run that had already started in March during COVID-19 lockdown. PayPal’s news sent both bitcoin and PayPal (PYPL) stock higher. It also came on the heels of Square (SQannouncing earlier in October that it bought 4,079 bitcoins at a cost of $50 million as an investment for its balance sheet. (Square’s bitcoin holdings are now worth $183 million.)

Square had already added bitcoin buying to its Cash App back in 2018, but in October it made its crypto support crystal clear: “Square believes that cryptocurrency is an instrument of economic empowerment and provides a way for the world to participate in a global monetary system, which aligns with the company’s purpose.”
 

While much of the attention has focused on PayPal and Square, Visa (which has a larger market cap than PayPal and Square combined) has taken a number of crypto-friendly steps over the past two years that have gone somewhat unnoticed, but may move the needle with mainstream consumers. It has approved a handful of Visa-branded bitcoin rewards credit and debit cards, partnered with Circle to add support for Circle’s USDC stablecoin, and invested in pure-play crypto companies like Anchorage, which in January got conditional approval from the OCC (Office of the Comptroller of the Currency) to launch a crypto bank.

Visa (V) led a $40 million investment round in Anchorage.

Visa’s imprimatur is “incredibly important because these are going to be the things that are going to drive mass consumer adoption,” says Anchorage cofounder and president Diogo Monica. “They’re building products that allow the mass audience to access crypto in the very easily usable way that they access the current products they have access to.”

MasterCard (MA), which has already backed debit cards from crypto companies like Nexo and BitPay, announced in a blog post this week that later this year it will start supporting certain cryptocurrencies “directly on our network,” a major step that the company warns “will require a lot of work.” MasterCard warns that it will select coins to add “based on our principles for digital currencies, which focus on consumer protections and compliance.”
 

And then there’s Tesla, which bought $1.5 billion worth of bitcoin in January, amounting to 10% of its cash reserves. (Square’s bitcoin buy was only 1% of its cash.)

Tesla’s buy pushed bitcoin to fresh all-time-highs above $48,000, and Musk’s crypto fervor on Twitter has pushed the meme-based cryptocurrency dogecoin (DOGE) to a $10 billion market cap.

MicroStrategy (MSTR), helmed by bitcoin believer Michael Saylor, holds even more bitcoin than Tesla (71,079 bitcoins), which it has bought in multiple buys over time.

“Companies like Square and MicroStrategy taking positions on their treasury explicitly for capital preservation, this is validation of the thesis of bitcoin as a store of value,” says Monica of Anchorage. “They are not going to be the last companies that are buying into bitcoin, and there's a lot of other companies that are following suit.”

Just this week, Twitter CFO Ned Segal told CNBC that Twitter has considered buying bitcoin for its balance sheet.

 

But more significant than buying bitcoin to hold as an investment might be Tesla’s disclosure, in its SEC filing, that it also plans “to begin accepting bitcoin as a form of payment for our products in the near future.”

PayPal will also add the ability to pay with crypto this year. On its Q4 earnings call last week, CEO Dan Schulman said crypto trading volume on PayPal has “exceeded expectations” and that the company’s efforts so far are “just the beginning of an extensive roadmap” around crypto.

Of course, if crypto prices keep rising, customers would be unlikely to want to spend their crypto.

But just enabling the option is a step toward mass adoption, since it legitimizes the idea of cryptocurrency as actual currency. For now, with some exceptions, it isn’t being used that way; it’s being hoarded as digital gold.

Legitimate embrace of crypto by companies like Visa, PayPal, Square, MicroStrategy, and Tesla is sending a message to their peer companies that, as Diogo Monica says, “it's not an if, but when they have to add this to their product lines.”

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