Payments Plunge as Irrational as Crypto Exuberance

Crypto has had a very bad year, with bitcoin’s 70% price collapse putting it in better shape than many of the other 10 largest cryptocurrencies, which are down 75% to 90%.

This puts them in roughly the same shape as many companies in the payments and buy now, pay later (BNPL) industry, which have also seen their share prices plummet in the past 12 months.

However, that raises a more troubling question: Why is it that companies like PayPal, Block and Affirm Holdings — which all have proven business plans, revenues, solid customer bases and clear regulatory requirements to follow — are doing no better than cryptocurrencies that, with one real notable exception of Ethereum, have none of those things?

Read more: Blockchain Series: What Is Ethereum? The Blockchain That Moved Crypto Beyond Currency

Now to be sure, it’s not an apples-to-apples comparison, or even apples to oranges. Even cryptocurrencies with strong development foundations are still decentralized projects with big goals but serious credibility problems ranging from inability to scale to huge hacks and collapses — and that’s before the increasingly hostile regulatory vacuum that politicians and regulators are filling.

But both industries do have one thing in common: They are in the business of payments. For all the talk of bitcoin as an investment token as opposed to a payments currency — its creator’s intended use was peer-to-peer payments without a trusted third party — virtually all cryptocurrencies on all blockchains are tools for settling transactions.

Payments Pain

To an extent, both payments firms and cryptocurrencies have had the same overarching problem in the past 12 months — specifically, a rising sense that the end of a long bull market that even survived several years of pandemic-induced disruption is in its dying days and a deep recession is coming. And a big sell-off in tech stocks generally isn’t helping.

For payments players, the huge haircuts in valuation over the last six months is a puzzle, since for many, valuations that are now more or less at pre-COVID levels imply that the digital tailwinds were temporary. An analysis using revised Census data shows how wrong that way of thinking is.

See also: Revised Census Data Shows eCommerce Share Didn’t Plummet After All

Although consumers may be cutting back, the price they are paying for goods and services continues to rise, which boosts transaction volumes. The boost in June retail sales was more about the impact of inflation on prices, rather than consumers buying more things.

Crypto Conundrum

The thing about crypto’s price collapse is that it’s a lot easier to understand. Without exuberance, a product whose core value proposition is at best years off is a harder sell in a downturn.

That’s the thing. While actual uses for blockchain are growing, and there are signs big finance is adopting decentralized finance’s (DeFi’s) tools, there really isn’t a lot there yet.

Related: Crypto Basics Series: The Tokenomics of Crypto

DeFi, as Securities and Exchange Commission Chairman Gary Gensler noted last week, sees 95% of its activity plowed into other DeFi projects, to the point that it’s close to a closed system, despite signs that things like crypto lending are moving out into the real world.

And the real underlying business case for almost all cryptocurrencies is that as their blockchains grow more and more successful, there will be more and more calls for a deliberately finite number of tokens required for any use or transaction. Which is nice, but with as many as 10,000 blockchains out there, there’s a lot of competition — even if tokens’ maximum caps didn’t tend to be numbered in the billions or trillions.

While Ethereum gets a lot of use and more than a few real businesses are up and running on other blockchains — Ripple’s cross-border payments network, for example — those blockchains are not in jeopardy of seeing tokens under-supplied for transaction use anytime soon.

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About: More than half of utilities and consumer finance companies have the capability to process all monthly bill payments digitally. The kicker? Just 12% of them do. The Digital Payments Edge, a PYMNTS and ACI Worldwide collaboration, surveyed 207 billing and collections professionals at these companies to learn why going totally digital remains elusive.

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