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Bitcoin market starts to mature

Interest and use of cryptocurrency bitcoin has undergone a meteoric rise in the past year, but it is now moving away from speculative investments into the real world of cross-border business transactions.

Among the stands of start-ups at TechCrunch Disrupt’s London event this week, the bitcoin story is emerging as the strongest in the fintech space. 

After its headline-making rise in value at the start of 2014, it has dropped again to more stable levels, but in the meantime the interest around the cryptocurrency, and the number of businesses supporting it, is on the increase.

 A number of the 
big-name banks are interested. They are leaders in the field and don’t want to 
stop innovation

Brian Armstrong

London is fast becoming the hotbed of activity for fintech development. The combination of design and development talent, coupled with the government’s supportive stance on developing the digital economy, is enabling companies to thrive, and even pulling in a number originally founded overseas to enjoy the supportive market conditions.

The unified regulatory space in Europe also opens up businesses to a market larger than the US and with a landscape far easier to navigate, where laws and regulations can shift between states. It is even beginning to encourage a trend of investment into Europe by US investors.

However, noticeable in their absence from the two-day event were the banks. While many talk about their dedication to the technology space, and Santander – HSBC and Barclays being just a few that have pledged to provide support to fintech start-ups – they do not seem ready to offer their full and visible support in the exhibition hall of such events just yet.

Brian Armstrong, co-founder and CEO of bitcoin wallet Coinbase, says: “A number of the big-name banks are interested. They are leaders in the field and don’t want to stop innovation. But the banks have been affected by regulatory concerns, and the risk of severe fines. But there are conversations happening now and many want to know more.”  

Beyond the negative

Beyond some of the negative news stories around bitcoin, interest has still not waned and moves are being made to see how it could fit into the worlds of business and commerce. While bitcoin and other cryptocurrencies aren't strictly regulated, they are not without regulation and do fall under anti-money laundering and compliance scrutiny.  

Bitcoin service providers are aware of the attention on them, and in response have begun to hire compliance officers as part of their workforces, not only to ensure they are meeting all of the current requirements but also that they have the groundwork in place in preparation for any more stringent issues that may be implemented further down the line.

Wouter Vonk, European marketing manager at payment provider BitPay, says: “The BitPay software provides value-added services alongside the core payment application. A few of these services are payroll and escrow services. BitPay will focus on merchants and plans to release more B2B services.”

BitPay has been up and running for around six months after securing the necessary financing from a combination of investors and high-profile entrepreneurs including Richard Branson, and can now count Virgin Galactic among its 40,000-strong base of businesses that accept the currency.

The unstable economy in Argentina has given bitcoin
a strong appeal. The people there have experienced
an even more volatile currency

Wouter Vonk

The company has bases in the US, Europe and, surprisingly, Argentina. The decision to move to Latin America comes from market demand. The country now has 8,000 convenience stores that are selling bitcoin through BitPagos. The political and economic climate in the country has encouraged some to look for alternatives.  

BitPay's Vonk says: “The unstable economy in Argentina has given bitcoin a strong appeal. The people there have experienced an even more volatile currency."

Coinbase's Armstrong says some small businesses are also seeing the benefits of making payments in the currency, especially when paying customers along their international supply chain. The payments would remove some of the FX volatility, and bring about a substantial reduction in fees paid on each transaction, making cross-border payments far easier and cheaper. 

He also points out that in Europe bitcoin can tap into the Single Euro Payments Area messaging network and make direct payments to the recipients, reducing fees and streamlining transactions.

“Bitcoin is an open payment platform and anyone can send on the network," says Armstrong. "There are some seeing it as an option to use for payments instead of a letter of credit. It is like making a cash payment, in that it is fast and cheap, but because there are no physical elements it is global.”

The currency might find its next surge in growth through the possible links to the development of mobile payments in the emerging markets. Kenyan start-up BitPesa is linking bitcoin to the established M-Pesa network

Armstrong sees this as being an important link to the unbanked community, and giving them a platform to make overseas remittances. In countries where markets have leapfrogged bank accounts to go straight to mobile, bitcoin is begging to gain some real traction as a currency fit for the modern digital age.