This article was originally published in the "Guide to Wealth: Diving into Bitcoin" (Guide to Wealth: Diving into Bitcoin), a special report of "Baron" magazine published by "Wall Street Journal". This is the third article.

Why are brick-and-mortar companies buying Bitcoin?

Original title: Why Companies are Buying Bitcoin?

By Avi Salzman

Translation: Miles

A year ago, Bitcoin was attractive to many companies only out of curiosity. However, things are starting to change now.

Currently, more than two dozen listed companies have deployed cryptocurrencies on their balance sheets. And more businesses are offering services to people interested in buying bitcoin, or to companies looking to hold and accept bitcoin as payment. Last month, PayPal began to support users to settle transactions with cryptocurrencies, which caused a stir in the industry.

Traditional Wall Street institutions are an important force in pushing Bitcoin into the mainstream. They are studying how to upgrade the current financial system to provide the same services for the encrypted market as the fiat currency market.

In February, Bank of New York Mellon, the oldest bank in the U.S., announced that it would soon offer customers deposit, withdrawal, and custody services for cryptocurrencies similar to stocks and other assets.

“In our view, digital assets are the future; it’s here to stay,” said Mike Demissie, who drove Bank Mellon’s crypto deployment. He predicts that the financial "rails" now elevated for cryptocurrencies will one day be used for other assets, such as bonds and funds, as well. "The larger trend is here to stay, and that's why we have this belief and commitment."

Due to the security risks of users directly holding Bitcoin, financial institutions can provide some paid services, such as custody. By developing systems to help clients hold and trade cryptocurrencies, these institutions can earn the same fees—perhaps more—as they invest in other assets.

Demissi expects that BNY Mellon may charge some commissions for its custodial services, which it launches later this year. He said: "The actual service fee has yet to be determined, but considering the risks involved in this type of asset and the additional technical requirements, this part of the fee will gradually increase."

For these institutions, the potential corporate clients are on the rise. Companies including Square and Tesla have already begun accepting bitcoin payments. Both companies have purchased Bitcoin as the company's financial reserves.

Some financial companies are also following suit. Insurance giant MassMutual announced in December that it had purchased $100 million worth of bitcoin. A company spokesman called it part of a "significant opportunity to expand the capitalization strategy". At the same time, she pointed out that the investment in BTC only accounts for 0.04% of the company's total investment share.

The companies that invest the most in Bitcoin tend to be run by people who are passionate about the cryptocurrency. Square's Jack Dorsey, Tesla's Elon Musk, and business software firm Micro Strategy's Michael Saylor all fall into this category. All three companies hold large amounts of bitcoin and are trying to develop new uses for it.

Tesla now supports direct purchases of its products with Bitcoin. Meanwhile, Square has an internal team working on an open-source project aimed at "helping the entire industry benefit from Internet currency protocols like bitcoin," not just on the Square platform.

“These guys are very powerful and have a say in companies that are already in the cryptocurrency industry,” said Michael Venuto, chief investment officer at ETF index maker Toroso Investments.

Financial firms holding BTC are increasingly prominent in Toroso’s ETF. Among them, almost a quarter of the investment objects are financial institutions such as PayPal; another quarter is invested in publicly traded bitcoin miners; about 10% is invested in encryption mines such as Nvidia (NVDA) and TSMC (TSM). Machine chip manufacturers; about 10% of the same share is invested in pan-encrypted ecological investment companies, such as Galaxy Digital (GLXY) and so on.

The acceptance of cryptocurrencies by U.S. businesses is a major shift for the industry as a whole. The original Bitcoin white paper explained how the blockchain could support peer-to-peer payments designed to bypass corporate and government regulation. And some of the companies involved today are the very middlemen that Bitcoin was originally trying to eliminate. Likewise, a purely Bitcoinist view has given way to a more flexible and corporate-friendly mindset.

Businesses emerging from the crisis and embracing crypto assets are banding together to lobby lawmakers to influence future regulation. Fidelity, Square, and Coinbase are all prominent members of the Crypto Innovation Council, which was formed in early April.

Zac Prince, CEO of BlockFi, said: "In the next few years, there will be a major integration of the encrypted currency financial system and the traditional financial system. BlockFi's business is similar to an encrypted bank, providing Bitcoin holders Offers interest on deposits and lends its bank's "deposits" to hedge funds and family offices. Prince said that the new crown epidemic has pushed companies to accept the encryption market, because financial institutions "hope to find something that can survive once in a decade." industry in economic crisis,” while the crypto market “not only isn’t dead, it’s doing remarkably well. "

There are also some limitations for businesses to enter the Bitcoin market. At present, the main business of listed companies holding BTC is mostly in the encryption field, and their prestige is not a household name. A Gartner survey of 77 financial executives in February found that only 5% planned to buy bitcoin as a company allocation. Another 84% do not want their companies to hold BTC on their balance sheets.

At the same time, most companies have been relatively slow to incorporate bitcoin into their business models. Square already supports users to buy and sell bitcoin through the Cash APP, but merchants using Square currently cannot accept BTC payments, and it is not clear when they will be able to accept BTC payments. The company tried to buy back bitcoins traded by merchants, but the project was shelved in 2014 because not enough merchants wanted to use BTC. At that time, Bitcoin’s infrastructure was not yet suitable for large-scale retail transactions, a Square spokesperson said.

PayPal's decision to bring cryptocurrencies directly to the retail consumer market is a landmark one. Payments on purchases are converted to cash before they enter the merchant's account. The same goes for Mastercard, which also plans to support cryptocurrencies in stores. For those who do this, there is a potential problem: According to the Internal Revenue Service (IRS) regulations, once Bitcoin is on an upward trend, every transaction settlement will be considered a taxable capital gain, resulting in additional tax rates.

Despite some hurdles, Visa and Mastercard have positioned themselves as serious players in the crypto market ecosystem. A true bitcoin network would completely replace the credit card network, as people would be able to transact directly over the internet.

Beyond that, Visa believes there are many other use cases for cryptocurrencies that could allow companies to play a bigger role. Visa has begun allowing companies working in the crypto industry to use digital assets for settlement on its platform without first converting to traditional currencies. And, the company has designed some plugins to allow bank customers to buy cryptocurrencies from its website. At the same time, they are also working with encrypted financial companies to issue credit card-backed Visa cards to customers that can provide users with cryptocurrency rewards. Customers who hold credit cards with cryptocurrency attributes can directly spend with cryptocurrency without the cumbersome steps of processing and converting BTC in the transaction.

"The value of this is that merchants don't need to upgrade their terminals or think about how to integrate with the blockchain," said Cuy Sheffield, who leads Visa's encryption affairs.

The process of enterprises embracing the encryption industry is accelerating. And similarly, the price of cryptocurrencies has also risen. It’s a virtuous circle, where corporate adoption helps spur price increases, and increased value convinces more companies to join the fledgling industry.

The real test may come in the next Bitcoin downturn. But until then, the game is on: Who will be the next big buyer of Bitcoin?

Venuto of Toroso, an encrypted ETF index creation company, said: "The next person who can buy a large amount of BTC is likely to be the actual owner of a large company."

"If you were to think about the most forward-thinking big company in tech right now, you'd probably think of Facebook or Oracle, not Apple, right? I mean, if Steve Jobs was still around, then It will certainly evolve with the times. However, Tim Cook is a different man; he is just a hired CEO, not a founding CEO.”