Morgan Stanley: Cryptocurrencies can increasingly replace conventional currencies

Cycle of increasing stability and popularity
Can you pay taxes in Bitcoin?
Cryptocurrencies as a means of payment for everyday goods

In the Morgan Stanley podcast “Thoughts on the Market,” Sheena Shah, senior crypto strategist at Morgan Stanley Research, notes that as businesses and consumers become more interested in using crypto assets for transactions, “a cycle of increasing stability and popularity began”. But the question is how long the cycle will last. Stability can be achieved if crypto assets are used as a means of payment. Now that bitcoin and other cybercurrencies are accepted as a means of payment in various places, the virtuous cycle has begun.

Everyday use of Bitcoin

According to Sheena Shah’s study, the currently high transaction costs and the limited number of merchants who accept Bitcoin & Co. as a means of payment are the two major “pushbacks” for cryptocurrencies. But there could soon be movement here.

At the Bitcoin 2022 conference, Jack Mallers, CEO of payments processor Strike, announced a collaboration with Shopify. “We are proud to partner with Shopify to offer merchants a cheaper and faster way to accept US dollars using bitcoin technology,” reads the businesswire press release. The Lightning network used by Strike enables approximately 1.7 million Shopify retailers to reduce costs and increase transaction speeds. BTC payments are converted to US dollars within the transaction, so the merchants themselves are not “faced” with Bitcoin.
Another milestone in Strike’s strategy to expand the spread of Bitcoin in both online business and important brick-and-mortar retail is the collaboration with POS (point-of-sale) provider NCR and payments company Blackhawk Network. This means that in the near future it could be possible to pay with Bitcoin in numerous US shops and restaurants, since large chains such as McDonalds and Walmart are among NCR’s customers.

Acceptance and proliferation of cryptocurrencies

As an example, Sheena Shah asks, “Did you really buy the house with cryptocurrencies, or did you sell your cryptocurrencies for US dollars to buy the house?”. Because this is exactly the difference: when cryptocurrencies are used not only as an asset, but for transactions of everyday (and not quite everyday) purchases, volatility decreases and thus consumer and business confidence in cryptocurrencies increases. Two conditions are linked to this: firstly, the payment process must be simple and cheap, secondly, payment with crypto assets must also be accepted by the state (e.g. taxes).

Numerous (federal) states are pursuing their own crypto strategies. El Salvador became the first country to accept Bitcoin as a means of payment in September last year. Other countries could follow, especially emerging and developing countries, since, like El Salvador, they are confronted with high costs in cross-border payments. Other examples include Rio de Janeiro, which aims to be the first city in Brazil where taxes can be settled in crypto. The Swiss cities of Zug (“Crypto Valley”) and Lugano are pursuing their own crypto strategies. According to media reports, Lugano wants to become a blockchain center with the help of the company Tether and enable fees, services and goods from both the private sector and the city to be entirely in cryptocurrencies. So far, Bitcoin, Tether and the stablecoin of the city of Luga have been approved. In the US, two states, Colorado and Florida, are considering allowing cryptocurrencies for tax payments, despite constitutional headwinds.

There are now over 50 crypto cards issued by companies and exchanges that are connected to the Visa or MasterCard payment network. It is already possible to pay anywhere in the world using a crypto card. Visa has enabled payments with the stablecoin USD Coin since March 2021. Since the transactions were first converted into US dollars and deposited in a bank account, the transaction costs were relatively high at first. In the fourth quarter of 2021, Visa processed just under 1% of crypto card transactions, a volume of $2.5 billion in a growing market.

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