American Express made headlines yesterday, mainly for its less-than-stellar quarterly earnings. But it also made headlines for its connection to a much less traditional financial story.
Its investment in a bitcoin venture.
Which is somewhat amusing, particularly because American Express CEO Kenneth Chenault once expressed skepticism about bitcoin's potential by saying: "There’s a reason credit cards were invented." Admittedly, at the same time (around December 2014), he also recognized the room for new players in the financial space was very much a viable conclusion.
So now, it appears that Amex's bitcoin bet may be paying off as Abra, the bitcoin venture it invested in this September, has launched into the U.S. and Philippines. So what's making all these financial institutions throw their weight behind bitcoin services? The big buzzword in the marketplace today of course is "blockchain" — and that's exactly what's driving Amex and other major financial players to support Abra.
Abra announced Wednesday (Oct. 21) that it will be expanding its bitcoin services that allow merchants to accept bitcoin from consumers — via an app, of course. It also enables consumers to send money from their phone to any other phone — or digital currencies from one phone number to another using that app (and to anyone in the world). The expansion into new territories was made possible with a $14 million round — led by Amex and the emeritus of Tata Sons, the holding company of Indian conglomerate Tata — that closed last month.
Amex's decision to back the bitcoin venture comes at an interesting time for bitcoin startups and the potential for blockchain technology. Other major players supporting bitcoin startups include NASDAQ, Visa, Goldman Sachs and the NYSE.
“As people and businesses transact more globally, there’s a need for more convenient and affordable ways to move money, and we think the blockchain could play an important role in the evolution of money transfer and commerce, especially in emerging markets,” Harshul Sanghi, American Ventures managing partner, said in a statement.
Abra is also planning to release its bitcoin-powered remittance app soon, pending approval from Apple's App Store.
EU: Bitcoin is Currency — Not Commodity
Just a month after the U.S. Commodity Futures Trading Commission (CFTC) declared bitcoin a commodity, the EU has taken its own approach in the other direction.
The European Union Court ruled this week that virtual currencies are, in fact, a currency and not a commodity. Where this matters, of course, is in how they're taxed. Because of this ruling, bitcoin is considered tax-free. But from Europe's perspective, bitcoin and other virtual currencies now have a stamp of approval toward being considered an actual currency.
“[This is] the first step in securing bitcoin’s future as a genuine alternative to national currencies,” said Richard Asquith, vice president at tax compliance firm Avalara, according to The Wall Street Journal.
Thursday's ruling is part of a dispute in the region with the U.K. tax authority that had decided that bitcoin is a currency. Other countries, like Sweden and Germany, however, wanted to call it a commodity, so transfers would bring sales taxes.
Why There Just Might Be Hope For Bitcoin
Balaji Srinivasan, the CEO of bitcoin startup 21 Inc., is making big bets on bitcoin's future.
The reason, he says? Its underlying technology. According to musings from Srinivasan at the WSJDLive tech conference, that technology is what is going to transform bitcoin's reputation and gain it widespread support in multiple industries, as well as convince consumers that bitcoin is worth learning about.
Srinivasan compared what bitcoin is doing now to what the open-source software Linux did for Android's mobile-operating system. Consumers aren't really aware of what underpins Android's technology — but they are users of it. The same could go for bitcoin, he said.
“What happened is Linux won but by stealth,” Srinivasan said. “In the same way, I think that a lot of people are going to be using bitcoin without realizing they’re using bitcoin.”
His thoughts on bitcoin's potential growth comes at the time where (as seen above) many major financial players are putting stake in bitcoin's technology: the blockchain. Conversations are starting to spark about how bitcoin could change the way money moves around the globe, how consumers transact and how money transfers hands — and at what speed that money transfers.
But what bitcoin and the blockchain really need is to be synonymous with a specific device. That way, the technology behind the bitcoin transactions are invisible to the consumer. It's just like when Microsoft built Internet protocol into Windows, Srinivasan said.
“We think something similar is going to happen with bitcoin where once bitcoin is built into devices, and devices natively have the capacity to turn power into digital currency, then a whole new class of applications will be built on the Internet,” Srinivasan said.