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IS BITCOIN TOAST? Yesterday, the website of Japanese Bitcoin exchange Mt. Gox went dark, indicative of an exchange in its death throes. Rumors are circulating that the exchange is insolvent and that 744,408 bitcoins are missing from the exchange. The price of Bitcoin nose-dived yesterday amid the news. This is the culmination of a few weeks of bad news for the exchange, ever since Mt. Gox's decision to halt withdrawals, which we've covered in our recent newsletters.
So is this the beginning of the end for Bitcoin, as some have suggested? We don't think so, but it does have two big implications for the system as a whole.
- Many people will think twice before putting their money in Bitcoin again. But that isn't really a big deal — it took a while for people to start putting their money back into the stock market after the financial collapse in 2008. While many may think twice before buying bitcoins, others will see the price drop in bitcoins as an opportunity, and eventually people will begin buying once again. Already the price of Bitcoin has begun rebounding.
- Regulation is going to be introduced in order to protect the consumer. Governments are going to start getting serious about regulating Bitcoin, the question will be the degree of regulation. If lawmakers respond hastily, regulation may end up too stringent, which could create prohibitive barriers to emerging Bitcoin-related businesses, including exchanges, processors, and Bitcoin wallets. In the U.S. we expect to see a more measured approach to Bitcoin regulation.
So far, federal prosecutors in New York have issued a subpoena to Mt. Gox, according to a report from the Wall Street Journal, and Japanese authorities are beginning to investigate the collapse. (Business Insider, Wall Street Journal)
But we expect Bitcoin will come back and continue to grow as a payments network for two reasons:
- Because Bitcoin is a distributed, open source system it won't die easy. People will innovate and create solutions to problems as they crop up. Bad ideas will get weeded out and good ideas will make the system stronger. It should also be noted, that there is no indication that the technical problems that plagued Mt. Gox are endemic to the system.
- Bitcoin's value as a payments network outweighs its risks. Bitcoin provides an inexpensive way for merchants to accept electronic payments without requiring sensitive information to be transmitted, as we covered in a recent report. The benefit is compelling enough that adoption will rise.
QUOTE OF THE DAY: "What was the industry’s largest exchange with over 1 million customers only months ago is now the fallen tower of toxic sludge. In its wake are numerous investors holding significant financial losses, broken trust and little recourse," says Mark T. Williams, professor of finance, risk management and capital markets at Boston University School of Management. (Business Insider)
BLACKBERRY IS EXPLORING PAYMENTS. BlackBerry phones and, in particular, BlackBerry Messenger still hold some traction in emerging markets. In these countries, where mobile payments are often popular, the company is exploring ways to turn the messenger service into a peer-to-peer money transfer service, according to John Sims, BlackBerry enterprise unit president. BlackBerry messenger currently has 85 million monthly active users. (Re/code)
A NEW CARRIER BILLING PARTNERSHIP FOR PAYPAL. Yesterday at Mobile World Congress 2014, PayPal and German telecom Deutsche Telecom announced a partnership to bring direct carrier billing to Deutsche telecom subscribers through PayPal's payment platform. Subscribers will be able to purchase digital content like e-books or apps and add the purchase directly to their mobile bill. The partnership will extend throughout Western, Eastern, and Central Europe. To learn more about carrier billing check out our new report. (BusinessWire via PayPal)
MASTERCARD'S OWN APP PAYMENT OFFERING: Also at MWC, MasterCard announced their own payments app. MasterPass will allow users to check out on mobile using their stored MasterCard payment details. The product essentially cuts third-parties out of the loop. Mobile payments is one of the most hotly contested payments arenas right now and it's not surprising that credit card companies like MasterCard are creating their own products to avoid having to partner with mobile payment startups. (Tech Faster)
WHY BRAZIL IS AN EXCITING MARKET FOR PAYMENTS. Card-based transactions in Brazil grew at a compound annual growth rate of 12.47% between 2008 and 2012. In addition to card payments, Brazil is also a prime market for mobile payments due to high mobile penetration in the country. While Brazil isn't nearly as big as China and India, it still boasts the sixth largest population in the world and is expected to grow fast, with 40% of its population currently under 24 years old, says Tristan Hugo-Webb of Mercator Advisory Group. This also makes it particularly attractive to payments companies. (Payments Journal)
ONE OF OUR PREDICTIONS FOR 2014 IS ALREADY COMING TRUE. In recent news, Spanish bank BBVA recently acquired retail banking startup Simple for $117 million. Simple provides its customers with an easy-to-use online and mobile banking platform. At the beginning of 2014, we predicted that retail banks would scramble to find ways to reinvent the consumer banking experience to reflect the shift towards mobile. BBVA's acquisition of Simple is indicative of this trend. (Business Insider)
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