Bitcoin’s supporters argue its clearer role in the future of money means the price — which topped $US50,400 on Monday — is less relevant to its emerging use cases over the medium term.
FX under attack
Citi also made headlines by claiming bitcoin could uproot the US dollar as the primary means of payment between global importers and exporters: “A focus on global reach and neutrality could see bitcoin become an international trade currency,” Citi wrote.
“This would take advantage of bitcoin’s decentralised and borderless design, its lack of foreign exchange exposure, its speed and cost advantage in moving money, the security of its payments, and its traceability.”
If Citi’s right about bitcoin’s ascent it may flatten banks’ lucrative foreign exchange (FX) fees and could damage pureplay discount rivals or middlemen such as Western Union, OFX Group, Transferwise and Travelex even harder.
Blue-chip tech giant Facebook has already cottoned on to the possibility of creating its own blockchain-based digital currency named Diem as an exchange mechanism to eliminate overseas transfer fees and the spreads charged on currency exchanges to send money internationally.
In theory, a person in the US could transmit savings back to Asia if the sender and receiver both had free Diem wallets via Facebook accounts. The recipients’ Diem could then be exchanged into local currency with lower fees as the middleman in the process is cut out, alongside the ability to charge a mark-up on spot FX rates.
The idea is also applicable to tourists travelling overseas who could use a decentralised cryptocurrency or one backed by a basket of currencies (as in Facebook’s Diem) to pay for goods or services abroad without paying a mark-up to middlemen often dealing in cash over-the-counter at airports, for example.
If central banks launch digital currencies of their own and allow citizens to hold accounts directly, this could accelerate a future where travel between Australia and New Zealand no longer requires exchanging one fiat currency for another.
Central bank fiat-backed digital currencies and direct-to-consumer bank accounts could also disintermediate retail banks’ fee streams in other ways and would meet fierce resistance from the banking establishment.
Citi said bitcoin could especially appeal to the public and private sector in emerging nations where currencies are vulnerable to extreme devaluation if governments are considered uncreditworthy. It cited Africa’s largest economy, Nigeria, as an example where importers were forced to pay far more for US dollars in 2020 after its economy was rocked by low oil prices and COVID-19.
Other petrodollar economies across Africa, Latin America, and the Middle East can still only trade oil in US dollars as a result of deals done in exchange for US security and largesse after President Nixon unpegged the dollar from gold in 1971.
Citi concluded there are obstacles ahead in the crypto space around regulation, custody, environmental concerns, insurance and cybersecurity, but the opportunities outweigh the risks to mean crypto is near a tipping point into the mainstream.