COVID-19 Could Open The Floodgates for More Diverse Crypto-to-Fiat Gateways

Access to bitcoin is currently one of its weakest assurances.

Fiat-to-crypto exchanges in many regions of the world continue to play regulatory arbitrage, and the regulatory environment is tenuous at best in many areas. Payment options are limited, and the vast majority of exchanges require burdensome KYC/AML processes even for menial purchases of crypto assets.

In the US, fiat onboarding continues to remain hindered by the concentration of users in the hands of a few major exchange players. Underbanked people that rely on payments rails (e.g., PayPal, prepaid debit cards, etc.) not directly integrated with the commercial banking system are left with few options, and P2P exchanges are rare — they also suffer from some problems not inherent with their centralized counterparts.

As the COVID-19 pandemic continues, better access to crypto assets will become paramount as people explore their potential. Search volumes for bitcoin are swelling, exchange volumes are surging, and account sign-ups are reaching levels not seen since the ICO mania of 2017. But is the access to bitcoin better than it was during that meteoric price run nearly three years ago?

A cursory glance at the landscape of major exchanges would reveal that, although more sophisticated investment options exist (e.g., options, futures, etc.), the answer is not really. If you dig deeper, though, there are some promising signs of expanding access to crypto assets in both the US and abroad.

Diversifying Payment Methods 

Most exchanges in the US are fully regulated and require cumbersome KYC/AML sign-up processes for users. This is designed to reduce fraud and illicit uses of cryptocurrencies, but the barrier to accessing these exchanges is surprisingly high for many Americans.

Many of the exchanges only allow fiat-to-crypto purchases via bank wire or ACH transfer, and with roughly 25 percent of Americans underbanked, that’s not always an option.

A significant subset of Americans, particularly immigrants sending remittances to their home countries, rely on alternative payment methods like Western Union, PayPal, prepaid debit cards, and others. P2P bitcoin exchanges, such as LocalBitcoins and Paxful, have historically been more welcoming to diverse payment options, but they suffer from scams, punitively high spreads and fees, and lack of volume.

As a result, more nimble services like Bitcoin ATM providers have stepped into the void to furnish more robust services for users of alternative payment methods. For example, crypto ATM growth is at an all-time high, offering various locations in local neighborhoods for swapping cash for cryptos like BTC and LTC. Although some, like Bitcoin of America, are fully licensed Money Services Businesses (MSB) by the Treasury Department, their KYC/AML processes at physical ATM locations are less onerous than exchanges. A phone number and ID scan are all that is required.

Beyond the cash-for-crypto swaps, though, companies like Bitcoin of America have also stepped into the alternative payments market. For example, the company offers PayPal sales, prepaid debit card support, and for larger transfers, bank wires like the major centralized exchanges. Users can buy/sell BTC or LTC at physical retail locations and even from a store clerk using a tablet partner program setup.

Broader access to alternative payment options doesn’t even take into account the privacy component of buying or selling crypto assets either.

For example, Americans sending remittance payments to home countries look for private means to send money to their families that, in many instances, are subject to strict capital controls. Research by the Open Money Initiative indicates that unbanked populations in areas like Venezuela and Nigeria will deliberately absorb higher fees to circumvent conventional fiat payment rails for instances of remittance, bypassing capital controls, buying foreign goods, or swapping into a stable foreign currency like the USD.

Bitcoin ATMs and fiat-to-crypto gateways offering alternative payment methods, like Bitcoin of America (that don’t require bank accounts), serve as the backbone to how many of those people conduct transactions. In fact, prepaid debit card models are often a favorite of people without banking services or those simply looking for more financial anonymity because of their distinct loophole within the financial surveillance apparatus.

Consequently, it’s not surprising that P2P exchange volumes, alternative payment options, and Bitcoin ATM metrics are swelling alongside an invigorated interest in crypto assets. Whether or not they subsist as ancillary gateways to major digital exchanges in the US or begin to absorb more of the market share remains to be seen.

The picture is promising for services like those rendered by Bitcoin of America, however. Specifically, they can function as the hub for an enormous remittance market in the US that relies heavily on alternative payment methods like prepaid debit cards, PayPal, and money orders.

Considering that a consensus is growing around macroeconomic analysis warning of a surging US dollar potentially hammering emerging market fiat currencies, remittance services may balloon in the coming years.

Better access to crypto will become paramount, and centralized exchanges are not poised to serve the needs of underbanked populations nor families sending money abroad. Access to bitcoin may be one of its weakest assurances right now, but a rapidly changing economic environment could force the hand of citizens and open the floodgates for a more diverse ecosystem of fiat-to-crypto gateways.

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