Gaining currency

Large firms signal mainstream acceptance of crypto

Cryptocurrencies came a step closer to widespread mainstream acceptance last weekend. Aerospace major Space-X will accept payment in cryptocurrency Dogecoin from Geometric Energy Co to send a 40-kg satellite to the moon in the first quarter of 2022. The contract value of the first crypto-funded space launch, the “DOGE-1 Mission to the Moon”, was not disclosed. Ironically, on that weekend itself, Space-X founder Elon Musk sent the value of Dogecoin plummeting by 35 per cent, when he joked Dogecoin was a “hustle” on the comedic programme, Saturday Night Live (SNL). Musk had earlier talked up Dogecoin, calling it a “people’s currency”. Following his SNL remarks, his social media followers panicked and sold down Dogecoin, which had appreciated 800 per cent in the previous 30 days. Even after the sell-off, Dogecoin retains a market value of about $75 billion, which makes it the fourth-most valuable crypto.

The price-sensitivity to social media is not surprising. Cryptocurrencies are bits of code, anchored to no real asset. Unlike fiat currencies, their value is not assessable by examining inflation differentials or trade balances. Hence, prices depend purely on the supply-demand equation, making them hyper-sensitive to social media twitches. To add to the piquancy, Dogecoin was invented as a joke by two software developers who pasted the digital image of a Japanese Shiba Inu dog on to the currency they created. They used elements of the original bitcoin concept but Dogecoin doesn’t have a rigidly limited money supply. Central bankers are uneasily realising a currency does not need to be anchored to anything, or even taken seriously by its creators to be a valid unit of exchange or store of value. If two counterparties are willing to exchange goods or services for a cryptocurrency, or exchange a crypto for a fiat currency backed by a central bank, the cryptocurrency has value.

Mr Musk’s “other company”, Tesla, started accepting payments in bitcoin for its electric vehicles last year. Tesla is a Fortune 500 company, and like any other auto major it has a long value chain, from primary metals to sophisticated electronics, and high-end services. SpaceX also has a long value chain like other aerospace companies. If industrial behemoths of this nature are prepared to use cryptocurrencies, it leads inevitably to greater acceptance by their suppliers. Cryptocurrencies have been popular for several years in certain areas of the global economy. But the breadth and scale of acceptance is increasing as Fortune 500 players get into the act. Online casinos make many payments in cryptocurrencies; smart individuals use them for cross-border remittances and some companies use them for cross-currency swaps.

Amazon allows transactions involving bitcoin through third-party service providers. Microsoft, AT&T, and Home Depot also have bitcoin payment systems. There are Android and Apple apps and “e-atms”, which make it possible to pay for airline tickets, etc. by real-time conversion of cryptocurrencies. Porn aggregators were also early adopters of crypto-payment systems. And, of course, a host of criminal activity is paid for via cryptocurrencies. The increasing use of cryptocurrencies by legitimate corporations alters the scenario. At some stage, every central bank and every national tax system will have to work out how to deal with these. India’s threats to outright ban these instruments sound increasingly out of touch with reality, given the reliance on remittances and the huge exposure to global trade.