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January 28, 2021

Market Spotlight

Corporate and Institutional Adoption of BTC With BlockFi


David Olsson, vice president of institutional distribution at BlockFi, joined host Teana Baker-Taylor to discuss what BlockFi is seeing in the market right now. One of the themes that BlockFi has observed lately is the corporate and institutional adoption of bitcoin. 

(00:57) “We’re seeing on our side a huge explosion in the number of corporate accounts on our platform. And it’s running on the heels of MicroStrategy last year adopting BTC as its reserve asset. And we’re seeing small and medium enterprises coming on, buying their first crypto or investing in stablecoins to earn a better yield than they can get at their bank,” explained David. 

For the most part, they see bitcoin as a store of value. 

Bitcoin Payments

(1:50) There are a number of places where people can spend bitcoin, something like 2,000 places globally. For example, the Dallas Mavericks, which is owned by Mark Cuban, accepts bitcoin for ticket payments and merchandise. Pizza Hut in Venezuela accepts payment in bitcoin. And U.S. mobile carrier giant AT&T also accepts bitcoin.

(2:25) “But it hasn’t gotten to the point where you can walk to the corner and buy things in bitcoin, and it’s probably got a ways to go,” said David.

Tax Implications

(3:09) The U.S. and U.K. governments are both looking at crypto as an asset class rather than as a currency. So in the U.S., if you spend your crypto and use PayPal to buy something or you pay your mobile carrier in crypto, it will be taxed as a capital gain, just as it would if you were to sell it in the market.

(3:34) “There are some technology solutions to address that, so TaxBit for example. But it just gives it that extra step. And it means that stablecoins will be the way forward in terms of using blockchain rails as a payment method. If you look at, for example, Bitcoin can only process 4.6 transactions per second. Visa 17,000. You need something that’s scalable like a Visa payment network,” explained David.

(2:25) “But it hasn’t gotten to the point where you can walk to the corner and buy things in bitcoin, and it’s probably got a ways to go,” said David.

Stablecoins on Fire

(4:27) Stablecoins are one of the most exciting parts of what’s happening in blockchain right now — the ability to move fiat 24/7 outside of the banking payment rails faster, more efficiently and with lower fees. There are two types of stablecoins: centrally backed and algorithmically backed.

(4:52) Circle’s stablecoin is centrally backed where there’s a reserve asset, US dollars, held in a third-party account and tokens are issued off the back of it. Meanwhile, Tether has had its issues surrounding reserves, but USDT has seen a 500% increase in market cap to USD 25 billion today, which is a bigger increase than bitcoin’s last year. That tells you how meteoric the rise in this asset class is, said David.

The other type of stablecoin, algorithmically backed stablecoins like Dai, are created when someone puts ether or an ERC-20 token on MakerDAO, they mint Dai, they take Dai as a loan and then they can go and trade it. The unique thing about that protocol is they control the peg through the interest rates on the loan and the collateral requirements, noted David.

Lending & Borrowing

The role that stablecoins play is becoming increasingly important, as a lot of the market action we saw recently has happened during the holidays or over the weekends.

(7:10) “We’ve seen a huge surge in demand for stablecoin loans. And rates are still good, 2-3% higher than they were a few months ago. So even with bitcoin’s slide over the last couple of weeks, the trading activity and volatility has meant that there’s still an increased demand for moving assets 24/7,” said David.

Institutions are getting the infrastructure ready. BlockFi has seen large hedge funds and asset managers coming in. And the conversations they’ve had since the beginning of the year have been with household names.

(8:16) “I think that they’re not quite so sanguine on buying bitcoin at USD 40,000 given the run-up. But they’re getting things ready to make an entry into the space,” said David.

Retail was very bullish on the way up. BlockFi saw its retail client base actually turn negative, net sellers on bitcoin last week for the first time in quite a while, becoming net buyers of ether and Litecoin. Still given the increase in price from a few months ago, BlockFi is still seeing retail dollar demand to draw out loans against their crypto.

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Gerelyn Terzo
Gerelyn caught wind of bitcoin in mid-2017 and after learning about the peer-to-peer nature of Satoshi's creation has never looked back. Previously she covered institutional investing and fintech for several major trade publications. Gerelyn resides in Verona, N.J.

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