Bitcoin buying made easy

There have been some grumbles in the crypto media recently about the difficulties people are encountering when trying to buy Bitcoin. This excellent article by Bailey Reutzel summarises his problems, which is surprising considering he is a seasoned cryptocurrency owner who has been buying it for years. He found that at a number of exchanges he was locked out because of his New York location. In the end he went to PayPal, and after he’d discovered that you can’t buy Bitcoin from a PayPal business account, he set up a personal account and successfully completed a transaction.

PayPal entered the crypto market recently, making it easier for the regular Joe to buy BTC, and it appears to have paid off. According to Martin Young at Cointelegraph, “$242 million worth of digital assets changed hands on the platform during 11th Jan.” PayPal’s recent record was $129 million on 6th January. And, since 1st January, its daily volume has increased by 950%.

This is a moment to reflect on, because as Nuggets News’ Alex Saunders tweeted, “retail has arrived.” That is important for achieving mass adoption.

There is a downside to using PayPal the critics say, because PayPal is like a ‘gated community’ that doesn’t “support withdrawal functionality.” Twitter user Toomas Zobel suggested that the surge in PayPal volume maybe have resulted from retail capitulation, and that there was no way to see if this was a buy or sell volume. He remarked that retail buyers were probably rushing to realise profits when BTC hit $40,000.

However we should be mindful that the PayPal and crypto relationship is just beginning, and that it has plans to extend cryptocurrency services to its 26 million merchants in the coming months. Undoubtedly this will fuel further demand for cryptocurrency and for PayPal’s services. Above all, for the inexperienced crypto buyer, it is a far easier proposition to set up a PayPal account and buy crypto there than venture into the exchanges such as Binance and Coinbase. When you make buying crypto easier for those who have never invested in stocks, you open up the market to the mainstream: something that crypto has been waiting to happen for years. Let’s see if 2021 advances the buying and use of crypto even further.

Why this bull run is not a repeat of 2017

Do you remember the last months of 2017 in the cryptocurrency market? It was everywhere. Even the MSM started talking about it, although its journalists tended to get it all wrong. The ‘haters’ compared it to the Tulip Fever of the 1600s, and when Bitcoin crashed after reaching an ATH of $20,000, perhaps they felt vindicated.

It has taken three years for Bitcoin and the altcoins to retake their 2017 positions, and who would have guessed that it would happen at the same time as the world was mostly staying at home due to a rampaging virus. But that is what has happened, and in the last few days we have seen Bitcoin break through the $40,000 barrier to become ‘virtual gold’.

The question most cryptocurrency owners must be asking themselves is this: is this bull run the same as in 2017? Jeff Wilser has taken a look at it, starting by saying, “for some reason this bull run feels different – not as mainstream, not as talked about, not as Paris Hilton-y.” Dare I suggest this is because people are more hooked on Covid numbers right now?

As Wilser says, there are ways to measure a bull run by looking at the frequency of Google searches for ‘Bitcoin’, and expert market analyses. However, what he has done is take a qualitative approach, to see how it ‘feels’, particularly to those he calls the “OG Bitcoin HODLers.”

One example is Erik Finman, the ‘Teenage Bitcoin Millionaire’, who bought 100 Bitcoin in 2011 with money his grandmother had given him. He dropped out of school at 15 and set up a crypto payments company, Metal Pay. Oh yeah, he also launched a satellite with Taylor Swift. He has a theory about why this new cycle is going relatively unnoticed: “The cultural space that was once occupied by crypto is now gobbled up by politics (Trump) and the coronavirus pandemic.” What did I say earlier?

“[Donald] Trump gets more clicks than crypto,” says Finman. Exactly! He thinks the Biden presidency may change that. Not because he dislikes Biden, but because he believes Bitcoin may be more interesting. And, if Covid-19 becomes about as interesting as the common cold that too will make space for crypto. It’s worth noting that during the shocking scenes of rioting at the Capitol on 6th January, Bitcoin surged by 10%.

Erik Voorhees, the CEO of ShapeShift, takes another view on it. He says: “You see the bull and the bust cycles that repeat several times over the last decade, and you see that each time bitcoin “crashes” the new level is higher than the prior cycle.” So, why the quiet now? Because, “We’re not in the real bubble yet,” Voorhees claims. It needs to get more exciting before the media starts shouting.

Others, such as Jill Carlson of Slow Ventures, says that with 20% of US dollars printed in 2020, Bitcoin has become a hedge against inflation. That doesn’t have quite the same ring for retail buyers as ‘When Lambo!’

There’s less hype this time round, but surely that is a sign that the market is maturing, and those of us who have owned crypto for some time are less anxious about the inherent volatility, while still quietly excited to see where this bull run goes.

Crypto market surges as Capitol burns

Yesterday, 6th January, was a jaw-dropping day for a couple of reasons. American politics reached a new low, as Trump incited his supporters to violence, resulting in a full-scale mob assault on the Capitol building itself, shocking the rest of the world as we looked on.

But, if that was the downside of yesterday, there was also a remarkable upside: the entire cryptocurrency market cap broke through $1 trillion, as Bitcoin and Ethereum continued their upward trajectory. The saying, ‘Maybe the moon’ is not looking so far-fetched right now?

As I write, Bitcoin has tumbled over the $37,000 mark: a remarkable recovery seeing as it was at around $31,000 on Monday. As Cointelegraph reports, “Measured by market cap, the crypto asset class has virtually doubled over the past month,” and BTC and ETH have seen new ATHs. ETH in particular is looking interesting, as it cleared $1,100 for the first time in three years, and now alongside BTC, the two account for two-thirds of the market.

Of course, they are not the only cryptocurrencies seeing exceptional gains, as “dozens, if not hundreds, of cryptocurrencies, report double-digit percentage returns this past week.” However, we must acknowledge that Bitcoin retains its market dominance, and is unlikely to be surpassed in value soon, even though altcoins may make bigger percentage gains.

To reach a $1 trillion market cap is remarkable, and it came only a matter of days after the leading crypto’s passed the highs of the 2017 bull run. Back then, the combined market cap hit roughly $830 billion, according to CoinMarketCap, and we thought that was huge at the time.

It is worth keeping an eye on the smaller altcoins though, if you’re thinking of investing. As Sam Bourgi at Cointelegraph says: “Bitcoin’s bull cycles pave the way for a subsequent altcoin rally, which is often larger than the initial BTC mark-up. Dubbed ‘altseason’ by the crypto community, the parabolic rise in altcoins can happen quickly, leaving investors with little time to prepare. “

Naturally, the current sentiment for cryptocurrency in 2021 is very bullish among crypto analysts and supporters, and those of us who hold crypto will no doubt hope their views are what come to pass. Crypto has often taken us into a beautiful dream, but as those of us who have been involved with it for years know only too well, it’s an edifice that can collapse with the same shocking speed, as a so-called peaceful protestors turn into an angry mob.

Neobanks need to own their niche

Currently there are somewhere around 256 neobanks in existence, according to Exton Consulting. These brands offer a digital-only experience that are perceived as customer-centric and easy to use, as in opening an account only takes a few minutes. They are also lower cost to use than their physical banking counterparts.

However, only a small handful of these banks have achieved substantial profitatbility. Their names will be familiar: Revolut, N26, Monzo, Nubank and Chime amongst them. The others, which are significant in number, are unlikely to be profitable for the foreseeable future, according to Accenture research, which revealed “the average UK neobank loses $11 per user yearly.”

Part of the problem is the rising cost of providing a service, whilst the margins generated per customer remain low. Finextra correctly reminds us that disrupting the traditional banking market was always going to be a long-haul business, and that it really needs large amounts of venture capital investing to keep the LTV/CAC ratio in good shape.

CAC is ‘customer acquisition cost’, and LTV is Life-Time Value in this case. The LTV is a measurement of the average revenue generated by a customer in a 1, 3 or 5 year period. Clearly, neobanks want this to be as high as possible, but it is one area where they are being challenged, as the average is around 15€ per customer per annum. Banks like N26 and Monzo obtain revenue mainly from “the low debit card interchange fees,” but this results in very low LTVs. Less travel and smaller purchases during the 2020 pandemic has had a big effect on this.

The CAC is calculated by taking the total money spent on customer acquisition and dividing it by the number of new customers. Neobanks do much better than traditional banks in this regard, “with an average CAC of neobanks around 30 euros versus 200 euros for incumbent banks,” Joris Lochy reports at Finextra.

Lochy says that what we are going to see this year is a switch from chasing growth to increasing profitability. Neobanks are being strongly encouraged by VC investors to provide more profitable products, such as investments and credit: products such as credit cards, overdrafts, salary advances and purchase financing. They are also likely to chase small business customers, and provide Banking-as-a-service services to other Fintechs or even banks.

It also follows that some neobanks will stop offering free services. They used these effectively to grow their customer base, but now they may need to charge more fees.

Threats are also coming from the incumbent banks, but perhaps the biggest threat is from Big Tech stepping into this space. As Lochy suggests, what the neobanks need to do is “find a niche where they can excel and not fight head to head with the large banks.”

Finding a niche

This is likely to come by restructuring and rethinking the product offering to provide an even more personalised service, probably in the credit sector. Some would also be better off by targeting a specific consumer group and tailoring their product offering to them. For example, the Longevity Bank is for Seniors, and there are ones focusing on women, freelancers and SMEs. Ultimately, what neobanks need to do to survive, is offer something that no other bank, credit union etc offers – that’s what ill really bring home the customers.