For Retail and Digital Currencies: Cryptos Today, Digital Dollars Tomorrow?

For bitcoin — indeed for cryptos in general — scale is the name of the game. Not just for trading, of course, where price spikes (and slides) are a hallmark of the speculation that still is rampant, but where scale might, conceivably lead to more rational price discovery.

Scale is critical in the bid to get crypto more prevalent in the commerce ecosystem in general.

To get a sense of how volatile the swings are — bitcoin, that marquee name of crypto, is trading at roughly $12,900, bid up by holders in anticipation that bitcoin may be on its way to the masses.

That sentiment was spurred in part by last week’s news that PayPal would allow customers to buy, hold and sell crypto directly from PayPal accounts.

The cryptos — including bitcoin,  Ethereum, Bitcoin Cash and Litecoin — starting early next year, can be used to transact at 26 million merchants across the company’s network.

PayPal is, also, reportedly mulling buying cryptocurrency firms — that would be plural — as reported Friday (Oct. 23) by Bloomberg. The newswire quoted unnamed sources “familiar with the matter.”

As it stands now, according to PayPal’s site, consumers will be able to instantly convert their selected cryptocurrency balance to fiat currency.

Having fiat on either side of the transaction speaks volumes to some of the challenges that surround a more mainstream adoption of cryptos, at least so far.

And that’s…volatility.

The swings can work to holders’ advantage and detriment as cryptos such as bitcoin are converted into fiat (with the attendant gains or losses in the conversion).

But, interestingly in what might hint at a longer-term outlook,  CEO Dan Schulman said last week that PayPal is “eager to work with central banks and regulators around the world to offer our support, and to meaningfully contribute to shaping the role that digital currencies will play in the future of global finance and commerce.”

There may be a knock on effect, where using PayPal’s crypto integration may give consumers the familiarity to feel emboldened to try other wallets or platforms.

There are several paths to get there, to that comfort level with everyday use.  Of course, along one avenue:  the Fed has said it is teaming up with MIT to explore the infrastructure that might underpin digital currencies, and in particular, the digital dollar.

One significant stepping stone to getting digital coinage more widely available came late last month where the Office of the Comptroller of the Currency (OCC) said national banks and federal savings associations to hold reserves on behalf of customers who issue stablecoins. The ruling only applies to cryptocurrency on a one-to-one basis by a single fiat currency.

It’s another piece of the regulatory puzzle that had been coming into sharper focus for crypto, for stablecoins. But there are still gaps.

In a nod to how unsettled the regulatory environment is, at present, CNBC reported last week that Ripple, the firm behind cryptocurrency XRP is considering moving its headquarters from the U.S. to London, reportedly due to “frustration with the U.S. regulatory environment.”  At the heart of that contention is the fact that across the pond, the Financial Conduct Authority doesn’t say XRP is a security, but can be used as currency. (Here in the states, the U.S. Securities and Exchange Commission has said that bitcoin and Ethereum are not securities and thus need not be regulated the same way.)

Beyond Volatility

As Jeremy Allaire, CEO of financial technology firm Circle, told Karen Webster that stablecoins and other crypto assets are getting ready to cement their respective places as payments instruments across P2P, C2B and B2B commerce.

“The biggest problem was they are highly volatile and really still are,” said Allaire to Webster, “because they are more like commodities that people are trading.”

But as Allaire noted, we’re getting closer to an era that will see the programmability of money. Peer-to-peer (P2P) transactions need only digital wallets and a means of direct communication to transact.

It’s worth noting that PayPal left the Libra project a little more than a year ago and was the first member to leave the Facebook-backed Libra Association. As regards Libra, betting that a  private company (or in this case a consortium of private companies) will upend the financial system on their own, with a single digital offering, may be a bit of a dicey proposition.

But betting on the end points and rails to facilitate those transactions may be a more sustainable strategy, as we move beyond bitcoin, eventually, toward ubiquitous offerings such as digital dollars.