The Mockery & Redemption of Bitcoin [Feb’21 edition]

Meme currencies & Payment infrastructure overhauls

Here’s the latest edition of my Payments Innovation newsletter, a monthly collection of small digestible content from the world of Payments, Fintech, Banking and Innovation.

You can read more about why I started this newsletter here.

This pint-sized month of February felt long. However the moment has finally arrived to redeem crypto from the depths of oblivion, given the capriciousness of the currency we’ve all come to know and “adore” — bitcoin. Here’s a quick recap of how Bitcoin and Crypto fared in general across world markets this February -

Crypto & CBDCs

There was an uptick in institutional interest in the emerging bitcoin and crypto asset class (Canada launched two new Bitcoin ETFs this Feb). Bitcoin price surged to an all-time high (above US$50K) this year abetted by the likes of electric car-maker Tesla, payments provider Square SQ and business intelligence company MicroStrategy adding bitcoin to their balance sheets.

  1. Facebook-backed digital currency Diem, formerly known as Libra, aims to launch this year
    Diem would be a US dollar backed crypto currency on a blockchain based payment system and apparently has cleared all the regulatory hurdles, thus aiming to launch by the end of this quarter.
  2. Amazon aims to launch its own crypto currency
    Everyone wants to be perceived ahead of their times, and the leading ecommerce retailer is definitely not backing down. Amazon seems to be laying the groundwork for its own crypto-currency which can potentially be deployed for payments across its ecosystem of products & services (think paying with “Amaze-coins” for your Amazon purchases, earning “Amaze” rewards, getting “Amaze-tokens” for deploying AWS for your company, probably even paying with “Amaze-coins” at WholeFoods or checking out with Amazon One (palm recognition) with crypto).
  3. Bitcoin climbs above $50K US for 1st time
    The Bitcoin rally was hard to keep track of, especially as each price-jump or slump made industry-wide headlines every morning. I was waiting for a deep correction to come by to get a piece of the proverbial pie, but alas, as of this writing, Bitcoin is still trading at US$45K. Think I’ll wait this one out for now.
  4. Tesla to accept BTC & $1.5B investment
    I should have begun this issue with Tesla (more specifically, Elon Musk) and its (his) love-affair with Bitcoin (and Dogecoin for that matter). Tesla made a resounding decision to start accepting BTC as payments for its products and services in the near future. This along with the $1.5B investment for its company coffers has made the currency a tangible force on the horizon.
    Prior to Tesla’s move, San Francisco-based Square Inc. announced in October that it had bought US$50 million in Bitcoin. MicroStrategy, a business data intelligence software company has again added another billion dollars in its corporate vaults. These announcements are testament to the fact that Bitcoin or some version of digital currencies are going to be a mainstay for Sapiens for years to come.
  5. PayPal to accept CBDCs
    PayPal is taking a slightly different route in the crypto train — instead of launching their own cryptocurrency, PayPal aims to leverage CBDCs (central bank digital currencies) as and when they become a regulated trade-able entity in each country. This makes sense since the core value proposition of PayPal is their cross-border payment network, hence the opportunity for PayPal is to work with regulators and central bank authorities in each country and become a universal distributing (and utility) agent for these varying cryptocurrencies & CBDCs.
    Imagine a Canadian merchant delivering a service to a Chinese company (who deals with their own CBDC — the Digital Yuan). I’d be able to use the PayPal network to receive the Canadian equivalent of CBDC (let’s name it “DCAD” for digital CAD) as payment for my services from the Chinese business (PayPal might effectively convert the digital yuan to DCAD).
  6. BNY Mellon plans to hold digital currencies for its clients
    The bank, which boasts around $2 trillion in assets under management, has announced plans to hold bitcoin and other cryptocurrencies on behalf of its clients.

currently developing a prototype that it claims will be the financial industry’s “first multi-asset digital custody and administration platform” for both traditional and digital assets — bringing bitcoin and cryptocurrencies under the same roof as traditional holdings.

digital asset unit will cover cryptocurrencies like bitcoin but also extend to stablecoins, such as USDC, as well as tokenized securities and real assets… Eventually, it’s also expected to include central bank issued digital currencies (CBDCs).

7. Mastercard to open up network to select cryptocurrencies
Mastercard already offers its customers credit & debit cards that allow people to transact using cryptocurrencies, although without going through its network. This move by MasterCard might potentially help merchants attract customers who are frequent users and holders of crypto. This means I’d be able to purchase for everyday items such as coffee and milk in my neighborhood grocery store with bitcoin, ether or even dogecoin, without the merchant incurring humongous interchange fees on every transaction.

8. First North American Bitcoin ETF Approved by Canadian Securities Regulator

The first publicly traded bitcoin exchange-traded fund (ETF) in North America has been given the go-ahead by Canada’s financial regulator, OSC.

Toronto-based Purpose Investments says its bitcoin ETF will likely start trading this week under the symbol “BTCC,” after the fund worked with regulators to make sure it could create something that follows the rules for both the ETF market and the digital asset industry.

Purpose Investments Chief Investment Officer Greg Taylor says the fund is different from a derivative or futures contract, as Purpose Investments will buy Bitcoin every time someone puts money into the ETF.

..the end result of these Bitcoin ETFs is that investors will hold actual Bitcoin in their portfolios but can buy and sell it similarly to buying or selling a stock.

9. Second Bitcoin ETF approved in Canada for institutional investors

Canadian regulators have approved a second Bitcoin ETF application filed by Evolve Funds Group. The fund, dubbed EBIT, will offer institutional investors an alternative way to access Bitcoin.

EBIT will directly hold Bitcoin in its cold wallets and conduct daily valuations of BTC based on CF Benchmarks’s Bitcoin Reference Rate. Currently, the company has no plans for Bitcoin derivatives or futures contracts.

These crypto ETFs allow investors to get exposure to digital assets without actually buying or holding them.

10. Endowment fund from Jack Dorsey & Jay-Z

An Endowment fund is an investment fund from a foundation with an aim to invest in non-profit development projects. This new fund from Jack and Jay is going to benefit the development of crypto projects, initially in Africa and India. So if you’re an entrepreneur or blockchain whiz who wants to kickstart a crypto venture, now is the time to take advantage of investments flowing through in the developing markets.

The duo is putting 500 bitcoin, which is currently worth $23.6 million, in the endowment called ₿trust.

₿trust is looking to hire three board members. The mission of the fund is to “make bitcoin the internet’s currency,” a job application describes.

11. Meme based currency Doge-coin

We have to give it to Personal Branding. Elon Musk has taken this concept to the extremes with his single-handed ability to move financial markets through just memes, emojis, one-liner tweets and joking remarks. This phenomenon of jokes taken seriously has capitulated Dogecoin — a cryptocurrency that was created more as a joke (by IBM software engineer, Billy Markus) than for any utilitarian purpose — to record highs after tweets from Elon & Snoop Dogg.

What are CBDCs?

CBDCs are the electronic equivalent of cash.

Like banknotes or coins, they would give holders a direct claim on the central bank, leapfrogging commercial banks. Backed by central banks, they would be as “risk-free” as traditional money, and let holders make online payments.

Access to central bank money beyond physical cash has so far been restricted to financial institutions. Extending it to the broader public would have major economic and financial repercussions.

Can Bitcoin be taxed, and how?

Finally came across this insightful article on the taxation rules and regulations on bitcoin and cryptocurrencies. Worth a read ^

there is no federal oversight of bitcoin’s spot markets. “The companies that allow you to buy and sell bitcoin and then exchange it back into a fiat currency are essentially unregulated,” said Elliot. “Their primary regulator is the state they operate, which use their own money-transmitter regulations. There are currently no federal laws that say bitcoin is subject to regulation and that a specific agency is in charge of regulating it. “The federal government has oversight only to the extent of the Bank Secrecy Act and the Patriot Act and other things that govern ‘now your customer,’ ‘anti-money laundering,’ and countering the financing of terrorism,”

Important to note that bitcoin is not considered a currency in the U.S. and doesn’t have any special tax rules applied to it yet. For tax purposes, the IRS currently treats bitcoin as property and not legal tender.

“If you tried to pay for something with Bitcoin, from a tax perspective, you’d be bartering — exchanging a good for a good. That’s like selling your bitcoins for a gain or loss and then using the proceeds for the thing that you’re buying,” said Andrew Silverman, Bloomberg Intelligence government analyst specializing in tax law. “Your gain on sale is the difference between the price you paid for the bitcoin and for how much you’ve sold it. Most investors will get capital gains treatment for the sale of Bitcoin. If the investor has held it for longer than one year, the maximum rate is 21% (plus the 3.8% excise tax, as applicable).”

Can bitcoin be taxed like gold?

The big question investors have is if bitcoin continues to trade like “digital gold,” will it be taxed like gold as well?

This question is important because gold is taxed at a higher rate in the U.S. since the IRS considers gold and other precious metals as “collectibles.”

It all comes down to how one is invested in gold. If an investor owns shares in a mining company, it is the same as buying or selling any other corporate share from a tax-perspective. But if an investor chooses to buy physical or gold-backed ETFs, then the tax implications change quite drastically.

What this means for bitcoin is that if the IRS changes its definition in the future, investors could be at risk of facing a higher tax rate.

“What that could mean is having APIs from the exchanges directly to the regulators so they can have a real-time view into the market and look for things like manipulation and other types of market distortions,”

Moving on to other news in the world of Payments and Fintech -

Twitter Subscriptions

Twitter is entering into a subscription based pricing model to provide more value for its content creators. ‘Super Follow’ would allow the twitter-verse to monetize the content they create for their own audience — literally how Medium launched their subscription based consumer product in 2017 to help content creators monetize their own valuable content. Twitter has previously monetized user data by opening up their Firehose for companies looking to analyze and leverage off of the massive amounts of content generated by the platform through APIs.

Digital Payments for Offline merchants

Small to mid-sized retailers and merchants in developing countries such as India still rely on cash and antiquated modes of payments. PayTM, GooglePay, PhonePe, Scan Pay, Amazon and WhatsApp — all have made forays into this market by allowing brick and mortar businesses to accept payments through QR codes. BharatPay is another entrant in this market hoping to empower small Indian merchants and retailers to accept digital payments and thereby secure working capital. However, the major difference (and advantage) of BharatPay from other digital payment providers is that BharatPay acts like a universal QR code coordinator on the UPI network (unified payments infrastructure) in India. So you can scan a single QR code, and pay by any of the applicable digital apps on your phones, be it Whatsapp, Amazon or Google.

BharatPe operates an eponymous service to help offline merchants accept digital payments and secure working capital. Even as India has already emerged as the second-largest internet market, with more than 600 million users, much of the country remains offline.

Among those outside of the reach of the internet are merchants running small businesses, such as roadside tea stalls and neighborhood stores. To make these merchants comfortable with accepting digital payments, BharatPe relies on QR codes and point of sale machines that support government-backed UPI payments infrastructure.

“BharatPe perhaps has the late mover advantages in the space. It was one of the first companies to act as a universal consolidator of QR codes on UPI, giving the merchant the advantage to have one QR code (eventually others like Paytm followed).

Ikea & Banking

The Swedish furniture brand has purchased a 49% stake in Ikano Bank. This would mean an array of possibilities for consumers looking to get quick loans within the store (think BNPL for in-store transactions), integrated offers and a seamless online-offline experience. Also, with Ikea’s focus on sustainability, it won’t come much of a surprise if customers are shown their carbon footprint, sustainability practices and other datapoints as they shop through the bylanes of Ikea.

Ikano Bank is a UK-based retail finance company that specialises in point-of-sale (POS) loans and store-branded credit cards.

..Offer a seamless digitized experience for both online and in-store customers.

Canada’s electronic payments system overhaul due in 2022

Canada is looking to overhaul its real-time payments infrastructure, with many banks having launched payment modernization projects of their own to support this industry-wide upgrade coming in 2022.

Lane said the “real-time rail system” could allow businesses to pay part-time workers immediately after a shift, or let homebuyers make a deposit digitally, instead of physically bringing a bank draft to their lawyer’s office.

He also said the system could allow governments to distribute emergency aid, tens of billions of which have flowed during the pandemic, directly into citizens’ bank accounts in a matter of seconds.

What is ClubHouse?

ClubHouse is the new blue eyed prince on the social scene — a platform for anyone to host and start an audio dialogue with anyone interested enough to join in the conversation. So far, we have seen Elon Musk, Malcolm Gladwell, Mark Zuckerberg, Guy Kawasaki and many many others on this social platform, talking about crypto, aliens, finance and what not.

The app now must face the usual challenges in the social media world, from how to monetize its popularity to how to pay content creators to how to moderate that content.

I’ve got 6 invites left for ClubHouse if anyone’s interested! Send me a message.

Microsoft, Tiktok & Pinterest

Microsoft understands synergies of social and communities and is thus playing a strong game to bring such companies under its portfolio. The latest rumors suggest Microsoft courting Pinterest, after it expressed interest in TikTok’s US operations from ByteDance last year.

Pinterest reportedly rebuffed the offer and talks have stalled. If the deal had come to fruition, it would have marked Microsoft’s biggest acquisition to date. Pinterest currently sports a market cap of more than $54 billion — more than twice the $26 billion Microsoft spent to acquire LinkedIn back in 2016.

Reddit raises new funding

Reddit is riding on the wave of its recent barge of public interest — with the Gamestock debacle or boon, you decide. It has raised $250M in series E funding :

“now was the right opportunity to make strategic investments in Reddit including video, advertising, consumer products and expanding into international markets.”

But what does it mean for communities? Would Reddit use this new cash for building a better sustainable online world, or would it get lost in the tunnels of monetization? There are tons of product opportunities for Reddit to leverage off of, be it social stock investing or content curation & news distribution.

Tree Card

As the name suggest, Tree Card is a free spending credit card made from wood, aiming to fight climate change and promoting green practices as part of its business. The idea is also to encourage consumers to spend responsibly, provide personalized insights based on their spending behavior and habits.

fintech offering a spending card made out of wood and the promise to fund reforesting via the interchange fees generated.

specifically, a portion of the card transaction fees your spending generates — is then put toward tree planting projects run by green search engine Ecosia.

Metal of the future

With the explosion of the EV sector and a heavy focus on climate change across the world, Nickel seems to be emerging as the metal of the future.

Nickel demand from the EV sector is expected to grow globally by 2.6Mt Ni to 2040, up from only 92kt Ni in 2020, and by 543kt Ni from 17kt Ni in 2020 within the European Union

The hope, thus, is that a decade from now nickel units available for recycling end-of-life batteries become a growing source of raw materials to produce nickel sulphate.

What’s with Blackberry

Blackberry has been in the news for a few important reasons lately -

  • BlackBerry’s QNX real-time operating system s used by most big global automakers.
  • QNX black channel communications technology is set to be used in Motional’s next-generation driverless vehicle platform
  • BlackBerry partnered with the Chinese tech firm Baidu to use its high-definition maps on its QNX Neutrino OS.
  • BlackBerry is also developing IVY — an integrated vehicle data platform — in partnership with Amazon Web services.

BlackBerry’s pedigree in safety, security, and continued innovation has led to its QNX technology being embedded in more than 175 million vehicles on the road today.

Is it time for us to invest in this former smartphone giant?

What is Public?

A new way to invest — a more social way. Public allows you to follow influencers, celebrities and even your own friends (retail investors) to keep track of their stock market trades, basically creating a social network based on stock investing. I’m sure in the future, you’d be able to analyze and provide commentary on your trades (or on companies), essentially akin to a subreddit of stock investment news and discussion.

Public aims to give people the ability to invest in companies using any amount of money, with a focus on community activity over active trading. It competes with Robinhood, M1 Finance and other American fintech companies that offer consumers a way to invest in equities with low or zero fees.

Public recently shook up its business model, moving from generating revenue from order flow payments, a key way that Robinhood monetizes, to collecting tips from users in exchange for executing their orders. Payment for order flow, or PFOF, has become a touchstone in the debate surrounding low-cost trading platforms, and how users may pay for their transactions if not in direct fees.

Joint accounts anyone?

Zeta, a fintech startup aims to disrupt the old way of doing Banking for couples. Splitting bills and household expenses to saving up for common goals such as vacations and children’s education, Zeta wants to bring forth a seamless banking experience for the modern couple.

Users use their Zeta account in two main ways: have it take over standing bills such as rent or mortgage, or have it serve as a savings account for mutual goals, such as a post-COVID trip or big shared purchase like a car or home. Users can direct-deposit as much money as they want from their main bank accounts into Zeta, and then use the Zeta debit card to swipe couple money instead of individual money.

What is a SPAC?

A Special Purpose Acquisition Company aka SPAC is basically a blank-check firm with a special purpose of acquiring other companies through the IPO route. It is Wall Street’s favored wealth-boosting vehicle of the moment.

This is a company that is given some funds by investors to go out and make acquisitions. Characteristics of blank check companies, they don’t have detailed business plans when they file their S1 statement prospectus before going public, they don’t have any operations.

You’re actually not investing in a business concept so much as you are in a management team that people who are bringing the idea to market. It’s important to know who’s offering up this back and try to get an idea of how they might perform. The company, which is going to go public via this type of vehicle, won’t even have any stated acquisition targets when it goes public.

BNPL for B2B

We’ve seen the likes of Affirm, Klarna, BrightPay and more strive to provide B2C consumers access to instant credit right at the checkout page online. The extended usecase for this capability has been to provide instant credit at the POS of a physical store. Now Tillit is going one step further to make the lives of B2B consumers easier by providing then instant access to credit at checkout. Think small businesses, merchants and retailers who’d be able to place bulk orders and pay for their purchases over time through installment loans.

With the tagline, “Making b2b purchases a breeze” and yet to launch, Tillit appears to combine invoice financing with a buy now, pay later model, meaning that credit is offered at the point of checkout (or invoice), with a number of payment options, including installments. In addition, Tillit offers expenses management, with a range features to make it easier for employees to make B2B purchases.

In other words, the premise is that sellers get better conversions through offering instant credit, and buyers can defer or spread out payments and have greater control and visibility over purchases.

I could probably keep writing about other interesting fintech movements (I had to cut down this draft ruthlessly to help avoid it being one of those newsletters that just languish in your mailbox, gathering internet dust), however the time has come for me to recommend something non-fintech/non-business related that I discovered this month :

CANVA — I can’t emphasize enough about the shameless simplicity and ubiquity of this platform. It has helped me in logo-designing, Instagram post styling and website design creation (and I’m not even a visual/UX designer!). Do check Canva out next time you require a well designed birthday invitation or want to impress your colleagues with a detailed infographic in your presentation. Will Canva go the IPO route? It’s up for speculation.

P.S. If you enjoyed this edition of my newsletter, I’d love for you to tell others about it! They can subscribe here.



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