The cryptocurrency industry, shaken by the FTX collapse and other failures and caught in the spin cycle of federal politics and regulatory scrutiny, is now seeing high-profile partnerships paused.
Visa and Mastercard are delaying the launch of certain crypto-adjacent products and services while they wait for the market to settle and for regulation of the cryptocurrency space to clarify. Reuters reported the developments, citing sources who asked not to be named.
A spokesperson for Visa cast the move as temporary but said: “Recent high-profile failures in the crypto sector are an important reminder that we have a long way to go before crypto becomes a part of mainstream payments and financial services.”
A Mastercard representative took a similar tack: “Our efforts continue to focus on the underlying blockchain technology and how that can be applied to help address current pain points and build more efficient systems.”
Suffering Black Eyes
Indeed, blockchain technology and its associated smart contracts and transparency have been touted as potential breakthroughs in a range of financial services as well as use cases beyond finance. Crypto advocates point to the potential for a fairer, more egalitarian economic system, greater efficiency of capital, improved cybersecurity, and secure identity-proofing, among other applications.
After the FTX implosion, Javelin Strategy & Research, in an impact note by James Wester and Joel Hugentobler, noted that its failure and others have “captured the attention of the broader public, providing a big black eye for the industry and fueling additional skepticism about cryptocurrency and digital assets.” The analysts called for the industry to step up its game in terms of governance, risk, and compliance but also to stay the course with decentralized finance, noting its breakthroughs.
Cryptocurrency Draws Attention from Washington
The messes in the cryptocurrency space have drawn scrutiny from regulators and lawmakers. The Securities and Exchange Commission and chairman Gary Gensler have long taken the view that crypto and digital assets are securities under U.S. law, not legal tender.
Meanwhile, in Congress, the debates have been pitched and contentious, with some legislators decrying crypto as a haven for “financial criminals” and other bad actors, while others warn that the upside of the industry could be sacrificed by laws and regulations that inhibit it too broadly.
In Javelin’s 2023 Cryptocurrency Trends & Predictions report, Wester and Hugentobler suggested that legal treatment of cryptocurrency would evolve quickly but that “nothing is particularly clear” in how it would play out. In the early part of 2023, that lack of clarity persists, and the card companies backing away from cryptocurrency—even if temporarily—seem to be acknowledging that.
In recent years, card companies had announced a series of partnerships centered on digital currencies and blockchain technology. Mastercard joined with a crypto lender, Nexo, a little more than a year ago to introduce a “crypto-backed” payment card. American Express, a year earlier, was considering crypto as a possible redemption vehicle for reward points. The Reuters report, quoting an unidentified source, suggested that crypto is not a priority now.
According to Thomas Hayes, chairman and managing member at Great Hill Capital, regulation must firm up before such initiatives advance.
“They cannot and should not move ahead until there is a clear regulatory framework,” he told Reuters.