As the coronavirus pandemic swept through the U.S. last year, the Oakland A’s began receiving more of a certain type of inquiry from fans: Were they planning on accepting Bitcoin?
The cryptocurrency was on a tear higher, after a flood of stimulus cash weighed on the value of traditional currencies. When Bitcoin’s price closed in on $60,000, A’s team president Dave Kaval said a moment of serendipity hit: The MLB team’s season suites cost around $65,000. So they put 10 suites up for sale, each purchasable by Bitcoin. The sales, so far, have put virtual money in the pockets of the team that pioneered Moneyball.
“We’re just holding,” Kaval said of the Bitcoin on its BitPay account. “That’s our strategy right now.”
You can now use Bitcoin to buy Tesla (TSLA) cars and buy Bitcoin via a PayPal (PYPL) account. But the gatekeepers to the global payments infrastructure are taking baby steps toward adoption. Questions over demand, compliance and transparency still weigh on using it to buy things, even as investing in Bitcoin is booming.
Bitcoin Payments To Merchants Still Small
Even as Bitcoin’s price squeezes higher, virtually no one in the crypto community used Bitcoin for anything other than investing last year.
Just 0.5% of Bitcoin transactions in 2020 were made for the purpose of actually buying something from a merchant, according to Chainalysis. That’s a lower percentage than in 2019, in large part because of the explosion in trading.
Backing by a central bank would go a long way to improve the sense of security about using Bitcoin payments or other digital currencies. China is handing out digital yuan to some citizens in a limited experiment. The Federal Reserve, however, still wants to study digital currencies before putting any to use in the real world.
A’s Mull Accepting More Bitcoin Payments?
So far, the A’s have sold one full-season suite, with a handful of partial-season purchases, Kaval said. The team is considering making season tickets available via Bitcoin, as well as allowing Bitcoin-paid sponsorships, he added.
The A’s sold the full-season suite to Voyager Digital, a New York-based cryptocurrency broker, last week, he said. Steve Ehrlich, Voyager’s CEO, said the company hoped to use the suite to engage its customers in California.
“We wanted to show the market that you can use Bitcoin for larger purchases,” he said.
The A’s haven’t converted the Bitcoin to cash, but its strategy of holding onto it could change, Kaval said.
“We’re a believer in it,” he said of Bitcoin. “We think it’s going to continue to be not only a store of value, but something that’s used for transactions.”
Tesla, which also holds Bitcoin, did not respond to questions about accepting Bitcoin payments and prior executive ownership of Bitcoin. Neither did Microstrategy (MSTR), another company that has brought Bitcoin onto its books. The A’s, as well, did not respond to follow-up questions about ownership.
Tesla CEO Elon Musk, in May, said in a tweet that he owned 0.25 Bitcoins. Microstrategy CEO Michael Saylor, in October, said he was holding 17,732 Bitcoins, and informed the company of those holdings before it decided to buy the cryptocurrency directly.
Bitcoin Payments Hit Obstacles
Elsewhere, Mastercard (MA) said it would support some cryptocurrencies directly on its network beginning this year. Visa (V) has Bitcoin rewards cards. And it launched a pilot program in late March to use the stablecoin USD Coin to settle transactions over Ethereum.
But the processing giants, by edging further toward Bitcoin payments, have also had to navigate other complications.
“Digital currency is still a fairly nascent technology, and as such there is inconsistency in the global regulatory environment,” Cuy Sheffield, head of crypto at Visa, said in an email.
Mastercard, similarly, said many cryptocurrencies “still need to tighten their compliance measures.” And it said in order to make the cut, a cryptocurrency needed to follow laws in the areas where people used it. Those digital assets would also need to have privacy and fraud protections.
People also have to want to use the cryptocurrency, Mastercard added. “To reach our network, crypto assets will need to offer the stability people need in a vehicle for spending, not investment.”
Bitcoin and other cryptocurrencies, of course, have their past to contend with.
Initial-coin-offering scams and out-of-nowhere pivots to blockchain cluttered Bitcoin’s 2017 run. A study in 2019 from Bitwise also found that 95% of Bitcoin’s trading volume on CoinMarketCap was fake, “thereby giving a fundamentally mistaken impression of the true size and nature of the Bitcoin market.”
Then there are concerns about the amount of energy Bitcoin chews up on a daily basis, as fleets of servers around the world grind away to process transactions.
Treasury Secretary Janet Yellen noted as much. “It’s an extremely inefficient way of conducting transactions,” she said in February, according to CNBC. She added that “the amount of energy that’s consumed in processing those transactions is staggering.”
Digiconomist estimates that Bitcoin’s yearly carbon footprint is roughly in line with all of Hong Kong’s. A single Bitcoin transaction, it estimates, leaves as much of a carbon footprint as roughly 926,000 Visa transactions. One such transaction equals around 30 days’ worth of power consumption by an average U.S. household.
The Tether Debate
Stablecoins, which unlike Bitcoin are cryptocurrencies whose value is often pegged to a government-backed currency, can facilitate trading and liquidity. They could speed central banks’ adoption of their own digital assets, a Citi GPS report said. Stablecoins could also serve as a bridge between traditional currencies and cryptocurrencies, they said.
Still, the crypto community has debated whether demand for tether — one of the largest Stablecoins — has played any role in inflating the demand, and price, for Bitcoin. Tether, the company, has vehemently rejected such suspicions, saying they were based on flimsy research.
But allegations in a closely watched lawsuit over Tether, which has a market cap of more than $45 billion and for years claimed to be fully backed by the dollar, have also raised questions about how much money is actually in the cryptocurrency system.
$850 Million Question
The companies that oversee tether in February reached an $18.5 million settlement with the state of New York, after Attorney General Letitia James accused the companies of deceiving clients by “overstating reserves.“
The settlement also alleged the companies failed to disclose millions of dollars moved between them to patch up “critical liquidity issues.” The settlement said those issues emerged after one of the companies, cryptocurrency exchange Bitfinex, in 2018 ran into repeated difficulties accessing $850 million in consumer funds held by a payments processor facing a regulatory crackdown and dealing with frozen accounts.
“Tether’s claim that its virtual currency was fully backed by U.S. dollars at all times was a lie,” James said.
The companies did not admit or deny wrongdoing in the settlement. They also said in a statement that “there was no finding that Tether ever issued tethers without backing, or to manipulate crypto prices.”
Stuart Hoegner, general counsel at Tether, said in an email that it was a “victim” of Crypto Capital, the payments processor. He said Tether was still trying to wrest back the funds it couldn’t access. Doing so, he said, involved litigation in multiple countries.
New York’s attorney general ordered Bitfinex and Tether to end all trading activity with people in the state. Tether will also have to provide public disclosures that break down, by category, the assets backing its cryptocurrency.
When asked for a breakdown of its reserves, Hoegner only said that every tether is “always 100% backed by our reserves.” Those reserves, he said, included traditional currency and other assets.
Tether has taken some heat for not releasing more detail about those reserves. It recently issued an attestation from an accounting firm that, it said, showed its reserves were fully backed as of Feb. 28.
A Coindesk story about the matter noted that attestation gauges the reliability of financial information. An audit, however, is done to uncover potential problems. And it said “no stablecoin issuer has been able to secure an audit.”
When asked whether it planned to have a full, independent audit, Hoegner said: “We are constantly assessing our needs for additional external services from professional services firms.”
Follow Bill Peters on Twitter at @IBD_BPeters.
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