New partnership hopes to boost everyday payments with crypto

As signs of stress flash red in conventional financial markets – from collapsing equities to soaring commodity prices by way of widening three-month FRA-OIS swap spreads – bitcoin continues to …bitcoin.

Larger markets don’t normally whipsaw like this. They are catching up with crypto, which remains as volatile as ever.

Languishing at $37,000 on the eve of the Russian invasion of Ukraine, bitcoin rose to $44,000 at the start of March, presumably on expectation of further central bank financing of developed-market sovereigns, currency debasement and lower-for-ever rates.

CoinShares reports that bitcoin investment funds saw $95 million of inflows in the first week after Russia’s assault, the highest weekly total since December 2021.

In addition, Marcus Sotiriou, analyst at digital asset broker GlobalBlock, reports: “Many Russians and Ukrainians have turned to Bitcoin to store their wealth since the war broke out, as we can see that volume for the Bitcoin/Ruble base pair has skyrocketed, whilst Bitcoin premium has risen on Ukrainian markets.”

He adds: “These are signs that people are waking up to the power of censorship-resistant, borderless money.”

Bitcoin promptly fell back to $37,000 on March 7 – maybe those rate hikes are coming after all – before bouncing back to $42,000 on March 9. Perhaps bitcoin is just another risk asset that investors may look to sell to meet margin calls coming at them from every which way right now.

Bitcoin remains a speculative investment. Increasingly popular with family offices and hedge funds, it seems as far away as ever from being a medium of exchange – a currency that people use to buy things at the shops. A lot of crypto wealth is locked up in wallets and may never be spent.

But true believers still hope that day will come.

Sean Rach, co-founder of hi, a crypto exchange and mobile banking platform with three million users that it calls members, believes it could be soon.

Rach’s company has just signed a partnership with Contis, a leading European banking-as-a-service platform that counts Visa and MasterCard among its partners and has UK and EEA e-money licenses.

The plan is that later this year eligible hi members who go through full identity checks will be able to spend their digital assets at over 60 million merchants using a simple debit card.

“Contis is licensed for the fiat world, and we are for crypto,” Rach tells Euromoney. “We will launch a debit card and an IBAN [international bank account number] tied together, making it truly seamless to use fiat to buy crypto, which can then be used to generate a much higher yield than on bank savings accounts.”

hi makes it easy to onboard members, who can join by clicking a link on Telegram or WhatsApp. Confirm their phone number, choose a nickname and away they go.

To transact on the new system, converting crypto into fiat with a debit card and IBAN, they will need to identify themselves with a photo ID such as a passport or driving licence matched against a selfie. Fully 700,000 members have already done so.

hi uses a traditional marketing funnel to encouraging daily engagement with free drops of its own token. Come on and say ‘hi’ each morning and get one hi, worth about 20 US cents. Answer simple questions to earn more.

Store those hi savings and they can earn a yield of maybe 8%. In an era when all interest rates are going up except for the ones banks pay on their savings accounts, the continuing attraction of cryptos isn’t hard to fathom.

Using them to buy things, though, is still a next step, 13 years on from the arrival of bitcoin. But it’s about to get easier.

Now, Rach says: “When members want to use those crypto earnings to buy their £3 cup of coffee, they first identify which crypto they want to spend, then just tap the card onto the merchant’s point-of-sale device. We do the conversion. Contis passes the proceeds to Visa. The merchant receives fiat. The consumer doesn’t have to worry about hash rates or any of that.”

He adds: “The transaction happens through that most familiar of formats to consumers, a debit card. This is much easier than trying to coordinate crypto wallets and pre-paid cards.”

That is far ahead of the current processing times that make bitcoin, for example, so difficult to use like this because it takes minutes to complete a transaction. Merchants may look forward one day to accepting crypto. Consumers have shown little interest so far in using it for everyday payments. The queue waiting for their frappuccinos can be testy enough without that kind of hold up.

Andrea Ramoino, chief strategy officer at Contis, explains how this may now be possible.

“The card owner books a sale of bitcoin at a set price. We then provide the fiat to the merchant from a pre-arranged liquidity pool in just a second. The pool receives the proceeds when the agreed sale of bitcoin is completed a few minutes later.”

That innovation removes one large obstacle that has long made spending crypto much harder than spending fiat. The launch of this service also hints at declines in processing costs that could finally enable micro-payments.

“There are new layers and new chains that provide numerous ways to minimize transaction charges, such as gas fees and commissions,” says Rach. “Friction costs are part of the margin in payments, but they are coming right down in cryptos.”

However, there is still the question of that famed underlying volatility. No one wants to buy a £3 cup of coffee with what might have been £100-worth of crypto when you set out to Joe & the Juice and could be worth even more to its new owner by the time you get home again, but that happened to fall just before you tapped your card.

“Sure. You don’t want to drink a £10,000 cup of coffee,” Rach agrees.

He says: “In the end, members choose in advance which cryptos they are going to convert into fiat. Bitcoin and Ether are big well-followed markets and people may feel happy spending some of their gains in those. Also, many people now hold a portion of their balances in stablecoins, and they might spend those.”

Bitcoin was launched to be a person-to-person payments system but then became an investment asset. It has enjoyed substantial uptake. True mass adoption hasn’t followed yet. There’s still a chance that it might.

The horror in Ukraine has shown the value of a form of money that governments cannot block or confiscate.