Halfway through this year, the Wirecard scandal shocked the world. What was once a tech darling, soon became a subject of controversy within financial circles. Before the news came to light, it appeared Wirecard could emerge as a dominant player in the crypto debit card space, but now, as Wirecard’s preliminary insolvency proceedings take place, the race to dominate the crypto card market has begun.
The dark past of crypto debit cards
In June, Wirecard filed for insolvency admitting 1.9 billion euros ($2.1 billion) absent from its accounts was non-existent. Former CEO Markus Braun was arrested and suspected of market manipulation. Wirecard was not the first, and it is unlikely to be the last to face regulatory scrutiny of its business practices in the crypto debit card space.
In 2018, WaveCrest, a worldwide digital payment solutions provider, was ordered by Visa
During the ICO craze of 2017, Central Tech promised the development of Centra Card, which allegedly could be used at Visa and Mastercard
Enterprise lend credibility
In July 2020, Visa posted a blog titled, Advancing our approach to digital currency, in which the company described its vision for digital currency. With plans to partner with many blockchain companies, Visa intends to provide customers with a broad array of technologies:
- Work with licensed and regulated digital currency platforms such as Coinbase and Fold.
- Create a bridge between Visa’s network of 61 million global merchants and cryptocurrencies.
In an expansion of its current cryptocurrency program, Mastercard is making it easier for companies in the digital currency space to issue branded payment cards as seen recently in a deal with Wirex.
- Allows digital currency companies to issue cards on Mastercard’s network.
- Wirex became the first native cryptocurrency platform to gain principal membership.
The cryptocurrency industry has also been making progress in the issuance of cards as well. For example, Binance announced recently that its payment card, Binance card, will be coming to Europe in the next year.
On the Europe front, Nike
Bitcoin leaving exchanges on record numbers
In the last 2 months, a record number of bitcoins was removed from exchanges. Some investors transferred to cold wallets, others to DeFi, as a means of funding peer-to-peer loans (P2Ps), and earn interest on crypto—much higher than bank interest. However, some exchanges are receiving an uptick in deposits. This could be due to a combination of:
- Security concerns: Over the years, several well-known crypto exchanges have been hacked (Mt Gox, Bitfinex, Upbit, etc). This means that there is an inherent risk of storing bitcoins on exchanges—many investors opting to store their bitcoins on cold wallets.
- Government intervention: The risk of governments initiating bans and confiscating bitcoins due to global economic uncertainty.
- The rise of DeFi: In the first part of 2020, the value of locked-up DeFi protocols increased from $1 billion to $4 billion, and a new concept known as yield farming was primarily responsible.
Cointelegraph reported on August 6, 2020, $1.2B bitcoins that were held in exchange wallets had left exchanges. Thor Chan the CEO of cryptocurrency exchange AAX said on Twitter, “We’ve seen more cryptocurrency deposits into our exchange and more importantly a significant increase in fiat to crypto deposits into our platform, especially from our users in China, Hong Kong and Singapore. The past 7 days data shows a 50%+ increase in BTC/USDT deposit on AAX.” Other exchanges have also reported recent spikes in deposits.
Inflation is expected to rise. Consequently, if people leave their money in the bank, then they’ll ultimately be losing money since the bank interest earned is less than the inflation rate. Ed Yardeni, the head of Yardeni Research told CNBC, “We believe that the Fed publicly would welcome inflation in a range of 2% up to 4% as a long overdue offset to inflation running below 2% for so long in the past.” If the Fed does indeed double the inflation; then, not only does this bode well for bitcoin—but blockchain DeFi products too.
Crypto card competition and trust
Whilst, crypto cards are an important financial tool for blockchain mainstream adoption, they still have a long way to go. From 2017-2020, scandals plagued the crypto card landscape. For that reason, it is likely that some consumer trust may have been eroded. With Wirecard out of the picture, Visa quickly jumped in to fill the void of the Wirecard-Crypto.com partnership and launched the MCO card via Crypto.com. Enterprise companies like Mastercard, Visa, and PayPal have shown a lot of interest in the crypto card/reward space. This is why the competition in the debit crypto card space will get fierce.
[Editor’s note: Wirecard and Crypto.com have declined to comment. This article will be updated if new information comes to light].