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The Outlook of Crypto in Retail

Contributors: David Patterson

Cryptocurrency – more commonly known as “crypto” – is a digital form of currency that differs from traditional forms of currency in that it’s based on blockchain technology. In simple terms, a blockchain is just a central list of transactions, duplicated and distributed to many computers. This list can’t be retroactively edited, and since it’s distributed, it prevents tampering and centralized management. This particularly helps with currencies based on the blockchain (i.e., crypto), as it provides increased transparency to all transactions and safeguards against tampering. Cryptocurrencies are decentralized, borderless, and accessible to anyone with a digital wallet, providing flexibility to users; however, the lack of a central authority that manages the valuation of crypto makes it incredibly risky. In 2022, crypto was the subject of both optimism and negative news, including major hacks, scandals, and market crashes, which cryptocurrencies are still combating in 2023. In this piece, we explore the outlook of crypto in retail and its implications for the industry moving forward. 

Crypto in Retail: A Currency and Payment Option 

Some experts believe that crypto has the potential to revolutionize the retail industry by providing a decentralized, secure, and efficient means of payment and transaction processing, while others are more cautious and see crypto as a high-risk investment that may not have long-term viability. 

Looking at the advantages, customers may appreciate the flexibility that cryptocurrency provides. Cryptocurrencies can expedite international transactions by not requiring currency conversions through banks, which can be costly and time-consuming with traditional payment methods. By accepting cryptocurrencies, retailers could reach a larger global customer base and streamline the transaction process.  

The popular electric vehicle company Tesla wished to leverage the positives of crypto as a currency and began accepting Bitcoin in March 2021 as a form of payment, but quickly reversed the decision two months later citing the environmental damages of mining coins. While still not widely adopted, around 200 retailers do offer the ability to checkout using BitPay, which is essentially a debit card linked to a shopper’s Coinbase account. Thus, shoppers at large-name retailers like Microsoft, Ralph Lauren, and AMC Theaters are able to make payments from their crypto wallets seamlessly.  

Cryptocurrency isn’t widely accepted as a medium of exchange, which limits its utility, and its value is highly volatile, making it risky as an investment and unpredictable as a currency. Also, the current lack of regulation and oversight coupled with the anonymity of transactions makes it at risk for fraud and market manipulation, meaning limited engagement from retailers. The U.S. Securities and Exchange Commission has stated that one of their main priorities for 2023 is enacting regulation of cryptocurrency assets, and recent lawsuits against Binance and Coinbase show the attention this technology is receiving. Overall, while cryptocurrency has its advantages, its pitfalls as a mainstream currency cannot be overlooked. 

What About Stablecoins? 

Some retailers viewed “stablecoins” as the antidote to these issues. Unlike traditional crypto, stablecoins pin their value to commodities or traditional currencies rather than letting the market set a value. However, as 2022 showed, even coins that have market values tethered to commodities or traditional currencies can still experience price volatility 

The early summer showed this phenomenon through the Terra (blockchain network) – LUNA (coin) crash. This fiasco occurred due to the crash of TerraUSD, whose value was not solely tied to the U.S. dollar like some other stablecoins. Instead, it used a dual-currency system with Terra (UST) and its governance token Luna. UST is designed to maintain a value of 1:1 with the U.S. dollar, meaning that for every UST token, there is a corresponding U.S. dollar held in reserve.  

When the price of its governance coin Luna, which was used to stabilize the value of UST, dropped significantly, this caused the value of UST to fluctuate and become unstable. This led to a drop in the value of Terra and UST, breaking the coin’s stability and causing large losses for investors. Thus, although Terra was marketed as a stablecoin, it wasn’t truly stable because its value was tied to the price of Luna, which could fluctuate.  

This crash and saga caused a large amount of speculation that cryptocurrencies were not as solid of an investment as originally thought, and the promise of a more stable currency that retailers could accept for payment was also washed away for retailers.  

Potential Applications of Crypto in Retail 

Organizations are also looking at unique applications of cryptocurrency beyond the typical crypto markets. Retailers could create their own digital tokens that customers could earn and redeem for rewards or discounts within their loyalty programs. These tokens could be traded on exchanges, providing an additional incentive for customers to participate in the program.  

Starbucks is showing there is an appetite to this through their “Starbucks Odyssey” platform, an extension of their popular existing Starbucks Rewards program. Customers will be able to engage in “Journeys,” or interactive activities within the platform, and earn stamps and points that will enable them to access exclusive benefits. Odyssey Beta launched in December 2022 and has seen a great deal of public interest, but it’s important to note that this isn’t a true application of cryptocurrencies and instead an enhancement of their existing loyalty program.  

As with any new tool, there are risks and opportunities associated with the adoption of cryptocurrency. While the decentralized nature of this technology offers transparency and security, the instability of valuations makes it a challenging medium of exchange for both retailers and their customers. Additionally, the regulatory “gray zone” that the digital asset industry has enjoyed to date seems to be narrowing with recent actions by the SEC. Retailers should approach further investments in this space with caution but continue to investigate novel use cases of the blockchain technology as it continues to develop.  

Our retail experts are not only knowledgeable but also passionate about empowering retail organizations. We provide comprehensive guidance on operational and technical investments, as well as governance, to ensure your retail organization is well-prepared for the future. Reach out to us today. 

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Tags: Digital, Retail Trends, Emerging Technology