Fintech Crypto Flip-Flops & Experiments
The world of cryptocurrencies continues to evolve, with a mix of regulatory scrutiny, institutional adoption, and new offerings. Incoherence reigns. The direction of travel is clear, but the way we get there is uncertain.
My article this week was inspired by the Revolut X announcement, which led me to look into Block`s Bitcoin Conversions and some additional ecosystem facts.
Stand for Crypto
The US non-profit organization Stand for Crypto aims to mobilize the 52 million American crypto owners, with support from industry players like Coinbase, Gemini, Paxos, and Paradigm. This movement highlights the increasingly political nature of money in the digital age. The current dominant broad-media Bitcoin narrative is a store of value and a medium of exchange (not money in the traditional 3-factor definition).
At the same time, the regulatory landscape remains uncertain, with the SEC issuing Wells notices to entities like Robinhood Crypto, Uniswap, and MetaMask for potential securities violations. This incoherence in the US regulatory approach creates challenges for the entire industry.
Block’s Bitcoin Conversions and Institutional Adoption
Despite the regulatory uncertainty, new crypto services are launched in the US. Block (formerly Square) has introduced a new feature called Bitcoin Conversions, allowing its Seller ecosystem to automatically convert a percentage of their daily sales to Bitcoin. This daily dollar cost averaging approach helps merchants accumulate Bitcoin, although the extent of adoption and usage remains to be seen. I see it as an expansion of Square`s Bitcoin Round Ups feature available to Cash App Card users to convert their spare change from everyday transactions into Bitcoin.
Square Sellers will be able to choose between 1–10% of their daily sales which will be automatically transferred to their personal Cash App account to purchase Bitcoin at the end of each day. This daily dollar cost averaging will help merchants accumulate Bitcoins (at a 1% flat fee) which can be held, sent, or sold of at their discretion. The question is the extent that Square Sellers will use this feature and if they DCA Bitcoins, will they use them as a debasement hedge and mainly hold them?
Institutional adoption is also on the rise, with wealth management firm Hightower purchasing $68 million worth of Bitcoin ETFs. Their 13F filing shows they have chosen a portfolio of six different Spot Bitcoin ETFs (from Grayscale, Fidelity, Blackrock, ARKinvest, Bitwise, and Franklin Templeton). Fidelity Digital Assets says Defined benefit plans and other pension funds “are only starting to talk to their investment committees”.
The approval of the 11 Spot Bitcoin ETFs in early January, has led to a total of $63 Billion in different wrappers (ETFs, trackers, ETPs etc,). The tokenization of Money Market funds has led to $1.28 Billion in Assets under management.
Bitcoin & Crypto as an Alternative Asset Class
I suggest considering Bitcoin & Cryptocurrencies as part of the Alternative Asset class allocation in an investment portfolio, alongside commodities, private equity, hedge funds, and real estate. Bitcoin`s & Crypto’s price volatility and asymmetric payoff, due to their 24/7 global trading on decentralized exchanges, make them qualify as an alternative investment despite being largely liquid, unlike traditional financial assets in the alternative asset class.
A reasonable allocation for Bitcoin or cryptocurrencies within a 20% Alternative Asset class allocation could be around 5%. However, this is not financial advice, but rather a model framework for investors to consider.
Revolut X — a comeback
Revolut’s launch of a separate crypto platform, Revolut X, is a controversial move in my opinion. While it may not improve the view of UK regulators who consider crypto a risky business, it showcases Revolut’s ambition to compete with laser-focused Cryptocurrency exchanges (e.g. Kraken, Coinbase, etc.) and low-cost established brokers involved in crypto for while (e.g. EToro, Plus500, etc.).
Revolut X will offer competitive trading fees and access to over 100 tokens, despite the company’s decision in early 2024 to halt crypto trading for its UK business customers.
Revolut X traders will be able to trade the 100+ tokens already on Revolut with fixed 0% maker and 0.09% taker fees regardless of their trading volume. Seamlessly switching between fiat to crypto and between Revolut X and your Revolut account. Retail Revolut traders will be able to access the Revolut X platform on their desktops.
Let`s not forget the incoherence here too. Revolut halted crypto trading for its UK business customers starting this January (not retail). In 2024, Revolut business users could no longer buy crypto and were limited to holding or selling their assets. Now, Revolut X comes back with a vengeance (let's hope that Elon Musk doesn’t get upset with the Revolut X naming).
I wonder how many Revolut UK business customers are crypto-related startups that were unbanked and stayed as customers after the crypto halting earlier this year.
Will Revolut mirror Robinhood in their crypto investment and trading activities? Recently, Robinhood Connect has integrated with MetaMask and with Uniswap.
Will Revolut X and Robinhood Connect, add Crypto index products similar to eToro`s collaboration with Index Coop?
Revolut has been one of the Fintechs that offered Cryptocurrencies early as a Customer Acquisition strategy, starting in December 2017! They reaped the benefits of providing convenience for an asset with high commissions and custody fees.
Currently, commissions remain c. 100bps as you see from Revolut`s site (not Revolut X) and from the fee structure of Square`s Bitcoin Conversions offering.
Premium and Metal users will be charged: a ‘percentage based fee’ of 0.99% of the value of your cryptocurrency transaction unless you reside in a country where Tiered Fees apply, in which case your fees are those set out further below. Source: Revolut
The question now becomes:
When will crypto become a low-commission or zero-commission asset class? Everything gets commoditized and cryptocurrencies will not escape, it is just a question of when and who will be the `Betterment`& `Robinhood` for cryptocurrencies.
For Stocks & ETFs, it took more than 40 years. Before 1975, in the US, commissions on stock trades were fixed. The brokerage commission market was allowed to compete with the Securities Act Amendments of 1975 signed by President Gerald Ford.
The final act that led to broad cuts in stock commissions is recent, when in February 2017, Fidelity Investments and Charles Schwab cut commissions. Many of us remember the reduction of equity commissions to $4.95 from $7.95 a trade. Robo-advisors and Robinhood gave the final push to zero-commission trading.
Conclusion
We are witnessing the interplay between regulation, institutional adoption, and `traditional` strategies and services for a new asset class. It is normal to expect flip-flops, experiments, and tug-a-war in this new asset class. However, keep in mind that everything will be commoditized. Crypto trading can't escape and it won't take several decades to drive crypto commissions to zero.
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