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Bitcoin’s dominance in crypto payments undermined

January 17, 2022
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Bitcoin's dominance in crypto payments undermined

Consumers and businesses are increasingly starting to use digital tokens other than bitcoin to make purchases, according to BitPay Inc., one of the world’s largest crypto payment processors.

Data from BitPay shows that the percentage of merchants who paid with bitcoin last year dropped to around 65% from 92% in 2020. In addition, ether payments accounted for 15% of total purchases, and stablecoins accounted for 13%. 3% of BitPay’s new cryptocurrencies in 2021: Dogecoin, Shiba Inu and Litecoin.

The use of stablecoins is surging in part because more and more businesses are starting to use them in cross-border payments. Consumers also tend to turn to stablecoins when cryptocurrency prices drop. And the price of stablecoins has been falling since the beginning of November. Currencies like Dogecoin also made a splash last year, thanks to companies like Tesla. Its CEO Elon Musk has said that Dogecoin can be used to buy the company’s goods.

Despite the volatility in the fourth quarter of last year, the price of Bitcoin is still up 60% in 2021. Many investors may also have chosen to hold the world’s largest cryptocurrency rather than spend it.

More investors choose Bitcoin to buy luxury goods

When investors use cryptocurrencies, many choose to buy luxury items such as jewelry, watches, cars, boats, and even gold. Bitcoin, touted as digital gold, is poised to replace gold, according to BitPay. The firm’s chief executive, Stephen Pair, said the company’s processing volume of luxury-related transactions surged from 9% in 2020 to 31% last year. The company’s total payments in 2021 are up 57% year over year.

With an annual transaction volume of $1 billion, BitPay helps companies such as Microsoft and AT&T accept cryptocurrency payments.

At least so far, the recent market downturn has not had as much impact on the spending habits of cryptocurrency investors as it did in the winter of 2018, Pair said. While luxury spending took a hit, the overall decline was much smaller, which could be a sign of confidence that the current downturn may be short-lived or that cryptocurrencies have a broader user base, he said.

“Our business goes up and down with cryptocurrency prices to some extent, and when prices go down, people tend to spend less. We haven’t experienced such a big drop in volume during this recent pullback. It may just reflect that more and more companies need it as a payment tool.”

More and more merchants are now accepting crypto payments. Last year, BitPay started working with VeriFone to accept digital currencies at terminals in different stores.

More and more companies accept bitcoin payments

A growing number of companies, including PayPal, are also dabbling in crypto payments. This shows the growth potential of the cryptocurrency payments market. Pair said:

“PayPal’s entry into this space is very beneficial for our business. It has caused some companies to start thinking about whether they should accept crypto payments.”

The company has raised $72 million from the likes of Index Ventures and Founders Fund. Pair said the company doesn’t expect to go public anytime soon, and it won’t raise a new round of financing or sell it, though the company has been discussing an IPO internally.

“We really like our strategic position. The space is still young. A lot of it has to do with our view of timing. We’re likely to see very substantial growth over the next few years.”

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