At the Tipping Point for Digital Currencies in a Fiat World

12 Feb, 2021
At the Tipping Point for Digital Currencies in a Fiat World

Critical mass.  Tipping Point. Has the world reached that significant point signaling mass adoption of digital currencies is finally underway?

If you’re following the news, there’s no denying that crypto has crossed over in the mainstream, at least in terms of awareness.  In just the last week, Bitcoin (BTC) continued to soar, inching toward $50,000 US, bolstered by Elon Musk’s disclosure that Tesla has invested $1.5 Billion in the coin and that it would soon accept the digital currency as payment.  In another major announcement, Mastercard said it would soon allow merchants to accept crypto payments. And yet another major announcement followed that BNY Mellon was forming a digital assets unit.

It’s clear that the fiat world is on notice that crypto has officially arrived. And it’s here to stay.

“The success or failure of many things is determined by whether “critical mass” is achieved so that increasing numbers are encouraged to join,” writes scholar Robert V. Dodge. “The “tipping point” is the exact point at which the reaction becomes self-sustaining.”

So, are we at the Tipping Point?”

If you’re holding BTC, you can’t help but think so.

“Bitcoin extended gains on Tuesday to a record high as the afterglow of Tesla Inc’s investment in the cryptocurrency had investors reckoning it would become a mainstream asset class for both corporates and money managers,” Reuters reported in its February 9 article titled “Bitcoin Rockets to New Highs as Tesla Takes it Mainstream.”

But some crypto analysts chose to take a more cautious stance.

“The main issue with the idea that mainstream corporate treasurers will follow the example of Tesla is the volatility of Bitcoin,” JP Morgan strategists wrote in a note published this week.

Not all of the moves in the financial industry announced this week were related just to Bitcoin.

Mastercard’s announcement that it would soon begin allowing its merchants to accept crypto as payment was another signal that digital currencies as an asset class could very well be at the tipping point.

“Whatever your opinions on cryptocurrencies — from a dyed-in-wool fanatic to utter skeptic — the fact remains that these digital assets are becoming a more important part of the payments world,” Mastercard’s Raj Dhamodharan, executive vice president, digital asset & blockchain products and partnerships wrote this week.

Mastercard’s announcement did not indicate whether or not Bitcoin would be included in the scope of digital currencies that would be accepted by merchants. Perhaps they are setting the stage for central bank digital currencies (CBDCs) which many large financial institutions are scurrying to bring online.  And maybe other stablecoins as well. Whatever the plan, you can be sure that Mastercard has done the research to recognize merchants and consumers are aware of and comfortable with digital currencies. Opening up merchant payments to digital coins will change the fiscal landscape.

“We are inspired by so much of the work going on in the payments world — in banking, in emergent fintechs, in crypto — to push forward change,” Dhamodharan wrote.  “And we are doing as much as we can to set the stage for these players to take the next step forward.”

BNY Mellon also jumped on the crypto bandwagon this week, announcing that it is forming a Digital Assets Unit to Build the “Industry’s First Multi-Asset Digital Platform.”

"BNY Mellon is proud to be the first global bank to announce plans to provide an integrated service for digital assets," said Roman Regelman, CEO of Asset Servicing and Head of Digital at BNY Mellon. "Growing client demand for digital assets, maturity of advanced solutions, and improving regulatory clarity present a tremendous opportunity for us to extend our current service offerings to this emerging field.”

In the highly competitive financial services sector, the moves by Mastercard and BNY Mellon validate digital currencies as part of the fiscal world.

“Consumers, including the large non-expert marketplace, must be able to understand, use, transact, and trust bitcoin and other crypto transactions. The merging of incumbent payment processors and well-known organizations with crypto payment options might just be the combination necessary to encourage such trust,” Forbes contributor Sean Stein Smith wrote.

Critical mass?  Tipping point?  It appears so.

Joyce Pavia Hanson