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Fintech not Big Tech: Square is a Greater Threat to Banks than Google and Amazon

A recent survey of 300 senior executives at US-based mid-sized financial institutions found that more than half of bank and credit union executives view Big Tech companies like Amazon and Google as significant threats to the banking industry.

Meanwhile only a third believe financial technology (fintech) firms will be a threat in the future but are they sleeping on Square?—Jack Dorsey’s financial technology venture whose stock price recently recorded a 20 month high, and the soaring price is being largely attributed to the firm’s integration of Bitcoin in its services.

What banks need to recognize is that while Amazon and Google are the perceived threats to the banking sector, they are actually on a path to become vendors or official distribution channels to banks—while Square will be their direct competitors. Unlike the institutions, Square’s acceptance and use of Bitcoin is also making it more marketable than ever to a highly desirable customer base.

Why Banks Should Worry about Square and not Google

As reported by the Wall Street Journal in November 2019, Google will begin offering checking accounts to consumers in 2020 as part of its push into financial services, The product, currently code-named “Cache,” will be run by Citigroup and small lender Stanford Federal Credit Union.

However, Google’s announced checking account is not designed to compete with banks’ checking accounts but instead actually enhances the banks’ services. In addition, Google has also launched an AI tool to help banks analyze their PPP loans, and has vastly improved its cloud services for financial institutions.

In contrast, Square Capital’s 75,000 PPP borrowers may give Square Capital new opportunities to rev up lending post-crisis. As Square’s base of large merchant continues to grow dramatically, the fintech is poised to take away a significant chunk of small lending volume for the banks.

Bitcoin Utility and the Cash App

As reported by Forbes on June 9, a recent survey of the banking industry indicates that Square may be a far greater threat to the traditional banking sector than Big Tech giants Amazon and Google.

The article suggests that Square’s surging growth and popularity come down to the number of Cash App services that can drive revenue, and its utility with Bitcoin making it attractive to older millennials and the Gen Xers.

Square has added a number of Cash App services that can drive revenue, and a recent push to highlight those features has helped it capitalize on them. According to Seeking Alpha, “Cash App is now used for tax refunds, stimulus deposit, and work paycheck deposit. Also, as retail investing surged during the stay-home period, Cash App has allowed people to buy equities and bitcoin with widely accessible features such as fractional investing and recurring purchases.”

Cash App’s P2P transfer network is its “best acquisition channel,” said CEO Jack Dorsey in a recent interview, because existing users bring in more consumers by sending and requesting funds.

According to Forbes, Cash App’s revenue for Q1 2020 was $528 million, three times its revenue for Q1 2019. In terms of Square’s Bitcoin news, a huge portion of the fintech firm’s revenue was in Bitcoin at $306 million, which also marked a $65 million increase year-over-year.

As the fiscal results show, the importance of Bitcoin to Square’s price growth cannot be overstated as the fintech firm is managing to capture a market that other virtual or challenger banks are not yet servicing.

Coinbase Exchange Users Can Borrow Up to $1M Loan with Bitcoin as Collateral

American digital currency exchange Coinbase Global recently has launched a loan service that will allow its users to take up to 40% of the total value of their Bitcoin holdings as a loan.

The Bitcoin holdings are subject to a maximum of $1 million per user, require no credit record to pass, and eligible users will pay a rate of 8% per annum on the loan.

The Coinbase loan product is reportedly floated to offer convenience to all subscribers who may otherwise resort to untimely asset liquidation in order to meet a pressing need. The funds disbursed by Coinbase can be wired to the borrower’s bank account or to their Paypal wallets.

“Have you ever needed cash for something urgent, like medical bills or car repairs? In the past, you might have sold Bitcoin to cover it and incurred a taxable gain or loss. Now you don’t have to,” the company says on its website.

The convenience attached to the Coinbase loan product is also visible in the repayment schedule. According to the firm, subscribers are free to repay the loan at any time, so long as the little interest is paid per month.

“Each month, you only need to pay the interest due ($10 min). Pay off the balance when you’re ready. The Bitcoin you use as collateral remains safely held by Coinbase. It’s not lent out or used for any other purpose,” according to the website.

The loan product will also help Coinbase users to wade off any form of taxation that the sales of Bitcoin may present. American regulators classified BTC as a taxable asset, and depending on the duration in which the digital currency was held up in custody. The tax rate can go as high as 30%.

The Coinbase move follows the discontinuation of its lend program after a stern warning from the SEC noted the product is like a security offering. The Coinbase loan product has been lauded by several industry stakeholders, including Mike Saylor, who tweeted;

“Congratulations. One small step for Coinbase, one giant leap for #Bitcoin.”

The Wormhole hack: hacker shifts $155 million

According to transaction data, the hacker who was responsible for the $321 million Wormhole bridge breach has moved a substantial portion of the stolen cash. On January 23, the hacker transferred $155 million worth of Ether (ETH) to a decentralised exchange (DEX).

The Wormhole hack was the third greatest cryptocurrency theft in 2022. This occurred after an issue was discovered on February 2 in the protocol’s token bridge. This attack led to the theft of 120,000 Wrapped ETH (wETH), which had a total value of around $321 million.

According to the transaction history of the alleged wallet address used by the hacker, the most recent activity shows that 95,630 ETH was sent to the OpenOcean DEX and then subsequently converted into ETH-pegged assets such as Lido Finance’s staked ETH (stETH) and wrapped staked ETH. This information was gleaned from the blockchain transaction history of the alleged wallet address used by the hacker.

After doing more research into the transaction history, members of the cryptocurrency community such as Spreekaway discovered that the hacker went on to carry out a number of transactions that seemed to be strange.

For instance, the hacker utilised their holdings of stETH as collateral to borrow 13 million worth of the DAI stablecoin, which they then exchanged for more stETH, wrapped in more stETH, and then used to borrow some more DAI.

Notably, the Wormhole team has taken use of the chance to once again give the hacker a reward of $10 million if they return all of the cash. An encoded message in a transaction communicates this information to the hacker.

According to statistics provided by Dune Analytics, the substantial amount of ETH that was transacted by the hacker seems to have had a direct effect on the price of stETH.

The price of the asset began the day slightly below its peg of 0.9962 ETH on January 23, and it reached a high of 1.0002 ETH the next day before falling back to its previous level of 0.9981 ETH at the time of this writing.

Blockchain security companies such as Ancilia Inc. issued a warning on January 19 that searching the keywords “Wormhole Bridge” in Google currently shows promoted ad websites that are actually phishing operations. This is likely to attract more attention to the Wormhole hack in light of the most recent incident.

The community has been cautioned to use extreme caution on the content of the links they click on in relation to this phrase.

BankProv Stops Offering Loans Secured by Crypto Mining Rigs

After wiping down $47.9 million in loans that were mostly secured by cryptocurrency mining rigs during the year 2022, the holding company for the cryptocurrency-friendly bank, BankProv, has announced that it would no longer provide loans that are secured by cryptocurrency mining rigs.

Since September 30, 2022, BankProv has, according to a document that was submitted to the United States Securities and Exchange Commission (SEC) on January 31, 2019, the percentage of its digital asset portfolio that is comprised of rig-collateralized debt has practically been cut in half.

As of the 30th of December in the previous year, the bank held a total of $41.2 million in loans related to digital assets. Of this total, $26.7 million was worth of loans that were collateralized by crypto mining rigs. However, this amount “will continue to decline as the Bank is no longer originating this type of loan.”

During the bull market of 2021, the cryptocurrency mining sector took on enormous amounts of debt, and miners often offered mining equipment that they owned as collateral in order to reduce their interest rates and save money.

The ensuing bear market that began in 2022 resulted in difficult circumstances for miners. As a consequence, many miners were obliged to sell the Bitcoin (BTC) mining rigs they possessed in order to fund their operational expenses, which resulted in a precipitous drop in the price of mining gear.

In spite of the lowering prices, several financial institutions that had issued debt that was secured by mining rigs were required to reclaim some of the miners that had been pledged as security.

A prior filing with the SEC indicates that on September 30, 2022, BankProv confiscated mining rigs in return for the forgiveness of $27.4 million in loans. As a consequence of this transaction, the company was required to write down an amount equal to $11.3 million.

According to Carol Houle, the chief financial officer of its parent firm Provident Bancorp, “As we look on 2022, we are eager to absorb its lessons and emerge a better, stronger bank.” The business’s decision to discontinue providing these sorts of loans was likely strongly influenced by the losses. In spite of the losses we incurred in 2022, we start 2023 in a strong financial position and with a diverse clientele.

Bitfarms Settles Debt with BlockFi

Bitfarms, a company that mines for Bitcoin (BTC), has fulfilled its financial obligations to BlockFi, putting an end to the short-lived commercial agreement that it had with the now-defunct cryptocurrency lender.

Bitfarms said on February 9 that it has completed its debt obligations to BlockFi in the sum of $21 million in return for a single cash payment of $7.75 million. This news came shortly after Bitfarms received the cash payment. After Bitfarms issued a warning that it may default on the loan it had taken out with BlockFi, the deal was struck some weeks after the warning was given.

According to statements made by Bitfarms’ chief financial officer, Jeff Lucas, this fruitful discussion and settlement moves our efforts to decrease indebtedness one step closer to completion. This successful negotiation and settlement helps advance our goals, especially when considered in conjunction with the prior reorganization and the termination of our obligations regarding capital expenditures in December.

Backbone Mining Company, which is located in the state of Washington and is a wholly owned subsidiary of Bitfarms, serves as the pivotal point of connection between the two companies, Bitfarms and BlockFi. Backbone Mining received a loan from BlockFi in the amount of 32 million dollars in February 2022 for the purpose of supporting equipment purchases. On the 31st of January in the year 2023, the entire amount of the loan’s principal and interest that was still due amounted to $21 million.

As a consequence of the settlement, all of Backbone’s assets, which currently comprise 6,100 miners, are free and clear of any liens or encumbrances that may have been attached to them before.

BlockFi submitted its petition to file for bankruptcy under Chapter 11 on November 28, just a few short weeks after the fall of the cryptocurrency exchange FTX. The fate of the lender seemed to be tied on the success of Sam Bankman-crypto Fried’s business in July 2022, when FTX US provided it with a rescue package for 240 million dollars.

Breaking: Bitcoin Enters Banking System, El Salvador's Cuscatlan and Agricola Accept it for Loans

El Salvador may be the most enthusiastic country to adopt Bitcoin. In addition to declaring it legal tender and investing in Bitcoin mining, the country now allows Bitcoin to serve as collateral for mortgages.

Two major banks in El Salvador, Cuscatlan and Agricola, have announced that they will now accept Bitcoin for loan payments. Customers can use Bitcoin to settle credit card debts or loans directly, eliminating the need for fiat conversion. This groundbreaking move was revealed through a tweet by Volcano Energy, a key player in El Salvador’s emerging crypto landscape.

The announcement aligns with El Salvador’s broader strategy to integrate cryptocurrency into its financial infrastructure. This is not just another step for Bitcoin adoption in El Salvador, but a significant move that could set precedents for the banking industry globally.

Legal Tender and Bitcoin Mining

In a landmark decision that garnered international attention, as reported by Blockchain.News, El Salvador’s President Nayib Bukele announced in June 2021 that the nation would be the first to make Bitcoin legal tender. Prior to this, Bitcoin had largely been regarded as a speculative asset, notorious for its price volatility.

on June, 2023, Volcano Energy, known for its renewable energy ventures, appears to be broadening its ecosystem to financial services that facilitate cryptocurrency transactions. The company has previously announced a $1 billion investment in a Bitcoin mining startup. This was part of a renewable energy initiative backed by Tether, aimed at making El Salvador a global hub for sustainable Bitcoin mining.

While the announcement focuses on financial transactions, the sustainability angle offered by Volcano Energy shouldn’t be ignored. El Salvador is already utilizing renewable resources for Bitcoin mining, and the same sustainable approach could be adopted for transactional services. As the nation attempts to make its financial system more resilient and self-reliant, sustainability may serve as a cornerstone.

Regulatory and Financial Implications

El Salvador has been a forerunner in cryptocurrency adoption since it made Bitcoin legal tender in September 2021. However, this announcement from Cuscatlan and Agricola Banks, facilitated through Volcano Energy, could have far-reaching implications. It is yet to be seen how international bodies like the International Monetary Fund (IMF) and even US Federal Reserve will respond to El Salvador’s banks incorporating Bitcoin payments for loans and credit cards.

What’s Next?

As cryptocurrency becomes increasingly integrated into El Salvador’s financial and energy sectors, the acceptance of Bitcoin by Cuscatlan and Agricola Banks marks a significant stride. This could pave the way for broader financial inclusivity and innovations in banking transactions, powered by renewable energy and blockchain technology. While it is too early to predict the full impact of this development, it surely positions El Salvador as a testbed for a new form of banking that incorporates cryptocurrencies.