The fiat Market Vs The Cryptocurrency Market: Competition or Partnership?Cryptocurrencies are becoming an inextricable part of our society. They are actively permeating all the spheres of our lives: users pay for goods and services with digital assets and use them to invest. Business, on its part, is implementing instant crypto accounting mechanisms into its processes. Even the likes of Facebook are getting in on the act.
Last year the well-known futurologist Thomas Frey predicted that by 2030 cryptocurrencies will replace 25% of fiat assets. Venture investor Tim Draper stated as far back as 2017 that Bitcoin and its derivatives will completely replace traditional money in 5 years. Morgan Creek Capital Management analysts in their Q2 2018 stock market review also made a statement to the effect that fiat will be completely replaced by cryptocurrency in the future.
However today traditional money and cryptocurrencies remain inextricably connected: cryptocurrency’s worth is estimated in terms of fiat, fiat is going digital, and many more cryptocurrency platforms are launching traditional asset trading. One way or the other the existing competition between the fiat and the cryptocurrency markets may very well lead to their complete merging.
Amongst the many platforms that support the relationship between fiat money and the cryptocurrency market is CoinsPaid.
The platform was developed to support storage and payment processing with cryptocurrencies, CoinPaid’s target base includes businesses looking to adopt cryptocurrencies as an alternative payment option.
As cryptocurrency adoption continues, businesses already set up with cryptocurrency payment processing platforms are likely to fare better than those restricting payments to fiat currency. Cross-border fees, exchange rates and transaction times are just a few hurdles that such platforms remove.
The advantage of platforms such as CoinsPaid is that users are, not only able to receive and send cryptocurrencies, but are also able to store and exchange. The platform also caters for fiat money, which is key as both forms of payment coexist.
As the likes of Facebook, Telegram and even governments develop and issue cryptocurrencies, the existence of independent but regulated platforms is key.
After a slow start, the adoption of cryptocurrencies has taken place at a far quicker pace than had been the case with bank cards and international wire transfer platforms.
Transaction times and fees, transparency, and lack of geographical boundaries continue to be the cryptocurrency advantage over fiat money and the traditional banking platform.
Fiat players in the crypto industry: how the fiat market is adapting to the cryptocurrency market
According to Coinmarketcap, at the beginning of August of 2019, the total market capitalization of 2,420 cryptocurrencies amounted to $302.7 billion. Compared to the fiat market, this is only 0.36% of the $81 trillion of all 159 fiat currencies in circulation recognized by the UN.
Making services cheaper with cryptocurrencies
The cryptocurrency market is only at the beginning stage of its development. However, fiat platforms are already seeing their potential, which addresses inefficiencies and excessive fee structures.
Large players are adding to existing service capabilities to support the buying, selling and implementation of cryptocurrencies. According to a study carried out by Blockchain Clovr, 15.8% of respondents (112 out of 707) use cryptocurrency to send money home and the number is likely to only rise further.
The popular international payment system Neteller also provided users with the option of buying and selling Bitcoin, Ethereum, Ethereum Classic, Litecoin and Bitcoin Cash with the help of one of 28 available global currencies. Webmoney, Payeer and many others provide similar services.
Banks’ controversial position when it comes to cryptocurrencies is well-known. For example, Bank of America, Citigroup, and Lloyds Banks forbid their customers to buy cryptocurrency using their credit cards. Morgan Chase’s CEO Jamie Dimon called Bitcoin a scam before announcing the development of its own cryptocurrency for accounting and payments.
In reality, large banks have also had to change strategy vis-à-vis cryptocurrencies. Thus in 2015, Goldman Sachs invested in an innovative financial company Circle and at the beginning of 2018 Circle acquired one of the largest cryptocurrency exchanges Poloniex for $400 Mln.
The Bank of England, China, and a number of EU member states are just a few of many central banks and governments looking to develop cryptocurrencies. Liechtenstein’s Bank Frick was the first to allow its customers to make direct investments in digital assets, protecting user funds through cold storage.
The crypto industry’s active development, which involves an increasing number of companies and consumers, is turning into an opportunity for traditional market players to strengthen their positions and play a significant role in the evolution of the financial system.
How the cryptocurrency market is adapting to the fiat market
Cryptocurrency platforms have from the beginning been trying to find a compromise between digital and fiat currencies to attract traditional traders and popularize cryptocurrencies.
Depositing and withdrawing cryptocurrencies
Popular crypto exchanges (Bitfinex, CEX.io, Bittrex, and others) support deposit and withdrawals in fiat currencies, as well as the trading of crypto assets in pairs to fiat. In this area, platforms that support the transfer, storage, and trading of both fiat and cryptocurrencies also include CoinsPaid. Looking ahead, the next key development will be the addition of custodial services to support the adoption of cryptocurrencies as an alternative to fiat money.
Earlier this year, the SEC cited a lack of custodial services as one of the reasons for delaying the approval of Bitcoin ETFs. As the market evolves, a number of players are already exploring and providing such services. CoinsPaid is targeting to provide custodial services by 2020.
Collaboration with custodians
Custodians are organizations that hold custody of securities and other assets that belong to customers.
Cryptocurrency services are moving to a qualitatively new level of customer service, attracting third-party custodians who provide security for client funds or introducing their custodian solutions.
Thus Coinbase became an official custodian in the summer of 2018, having concluded an agreement with n SEC-accredited broker Electronic Transaction Clearing and received the approval of a New York regulator. Coinbase Custody service is aimed at large institutional investors, and BitGo company and Xapo cryptocurrency wallet provide custody services for a wide range of users.
Bank License Acquisition
Some cryptocurrency services acquire a banking license to simplify internal operations. For example, a successful startup called Circle plans to obtain a U.S. federal banking license for trading tokens, which U.S. law classifies as securities, and also to avoid difficulties associated with registering a cryptocurrency platform in various states.
The cryptocurrency bank Foundrs Bank is also working on acquiring a European license. The largest cryptocurrency exchange Binance has a 5% stake there.
Since the advent of cryptocurrencies, many supporters of this new money have been positioning them as a replacement for fiat. Today it has already become apparent that digital currencies are not only analogous to monetary units, but also solve many other problems, providing fast and secure transactions, transparent and stable management of financial payment systems in companies, significant reductions in costs due to absence of intermediaries, and others.
At the same time, the cryptocurrency market works in close conjunction with the fiat market, and companies that use the strengths of both systems gain a serious competitive advantage. Therefore, the leading players in the fiat and cryptocurrency markets are joining forces to provide business and private users with even more opportunities using new multifunctional solutions (Coinbase, CoinsPaid, BitGo, Xapo, and others).