Collin Canright appears on a panel, Digital Payments and the Future of Money, at 6 p.m., October 16, Chicago. Use discount code CCDP for 30% off. Details and registration at https://canright.co/DigitalPaymentsPanel10-16-24
Interest among institutional investors in digital currencies as an investible asset continues to grow while money movement and payment use cases gain traction.
An investment survey shows that institutional investors are increasingly seeking exposure to the yields digital assets can bring, while a panel at the Federal Reserve Bank of Chicago’s annual Payment Symposium discussed corporate and central bank use cases. At the same time, a leading FinTech payments provider began supporting stablecoin payments.
Institutional Investment Grows
The Alternative Investment Management Association (AIMA) and consultancy PwC released their 6th Annual Global Crypto Hedge Fund Report 2024. As a result of increased regulatory clarity and digital asset-based ETFs, “nearly half (47%) of traditional hedge funds surveyed this year have exposure to digital assets, up from 29% in 2023 and 37% in 2022.”
In addition, “43% of traditional hedge funds—whether invested or not in digital assets—are seeing increased interest from institutional clients.” Family offices and high-net-worth individuals remain the most significant investor categories in digital asset-focused hedge funds, followed by fund of funds,” the survey finds.
These findings align with the typical use of cryptocurrencies and other digital assets as investments, as reported in FinTech Rising’s Cryptofinance Returns. I’m quite sure that their use as payments is much smaller, especially if you consider stablecoins as a means of moving cryptocurrencies from one digital wallet to another rather than as a means of exchange in the friction-filled system of goods or services.
Financial Institutions Develop Digital Payments
After listening to the digital money panel at the Chicago Fed’s payments symposium, I’m betting on government and corporate treasury management to provide payments use cases for digital currencies.
“CBDCs and stablecoins are most closely related to digital currencies,” notes Matthew Blumenfeld, global and U.S. digital asset leader for PwC U.S. The two largest stablecoins, Tether’s USDT and Circle’s USDC, are both denominated in USD. “So they play a large role in the dollar’s strength globally.”
He also predicted that programmable money within digital wallets will become increasingly important. “Smart contracts empower businesses to create unique solutions that were previously unattainable, such as automated intercompany and cross-border capital movements,” states Streamlined Global Commerce – The Role of Digital Assets, a joint Citibank-PwC report.
JP Morgan, famous for its chairman’s dismissal of bitcoin and investment in its own digital-asset coin and infrastructure, is betting heavily on treasury use cases for digital money. “We’re trying to create a smart 24×7 system that’s recognizing the cross-border nature of money, and that requires very little intervention,” reports Nelli Zaltsman, head of platform settlement solutions for JP Morgan’s Onyx.
For instance, the bank’s blockchain-based systems can program conditions that trigger money movement. “They can be very simple conditions, like: At this time of day, move money from my London account to my Singapore account.”
Most of the world’s central banks are working on digital versions of their national currencies. Matthias Schmudde, head of the Digital Euro Working Group at Deutsche Bundesbank, reported progress on a digital Euro for both retail and wholesale use.
Why a digital Euro? “So far, except from cash, we don’t have a universal means of payment in Europe, one that’s accepted in every country.” As legal tender, the digital Euro would solve that problem by providing digital European Central Bank money. Interest in digital money to this point is mostly on the wholesale side, he said.
Private and Public Digital Money
Yet there is an indication of retail interest in digital currency payments this week. Payment FinTech Stripe introduced USDC payments this week, “marking a significant moment for crypto adoption as stablecoin transactions see global demand,” CoinTelegraph reports.
The option gained traction in 70 countries on its first day. “All stablecoin payments are converted to the United States dollar before being stored in Stripe wallets. The company charges 1.5% of the transaction amount in U.S. dollars.”
The theme that runs this report is an interplay between public, national financial institutions and private investment and FinTech firms. “Public money will provide stability and trust. Private money offers innovation,” says Yuliya Guseva, professor of law and director, FinTech and blockchain research at Rutgers Law School.
“Interoperability remains key to the coexistence. APIs, smart contracts for programmable money, and protocols for seamless conversion are critical. “Hopefully, we finally will get to the point where the risks of the private solutions will be reduced, so innovation will help us move forward.”