In response to my January 12, 2017 Visa – I Will Never Sell This Holding post, some readers commented that Bitcoin or Blockchain technologies would likely disrupt the financial industry to the extent where VISA could likely see an erosion of its business model. The purpose of this brief post is to give my opinion on VISA and the potential impact of bitcoin and blockchain technologies.
Some people appear to use the terms Bitcoin and Blockchain interchangeably. They are, however, different.
Bitcoin is a digital currency system that enables participants to create and transfer Bitcoins using a Blockchain which are the rails upon which the Bitcoins are created and transferred.
A good short article on the difference between Bitcoin and Blockchain can be found here.
If you want a further explanation of Bitcoin, you can find one here.
The growth in the use of this cryptocurrency has been phenomenal. As at the end of 2015, around 15 million Bitcoins were in circulation with a total market value of more than $6 billion. Furthermore, the number of Bitcoin transactions per day had grown 150 percent and the total number of Bitcoins in circulation had increased 10 percent in 12 months.
Along with the surge in popularity came a hit to Bitcoin’s reputation.
- Bitcoin’s market price was extremely volatile with 450% price spikes evidenced
- The Silk Road, the online black market that catered to a wide range of illegal activities such as money laundering and narcotics trading, used millions of dollars’ worth of Bitcoins to conduct illegal transactions.
- Gox, once the world’s largest exchange for the decentralized virtual currency, filed for bankruptcy protection in February 2014. It was reported that 850,000 Bitcoins, worth $450 million at the time, had disappeared or been stolen by hackers. Mt. Gox said it also lost $27 million in cash.
While I suspect Bitcoin likely will not change the financial industry as we know it, it is very likely the further development of Blockchain technology will have huge ramifications that will reverberate throughout multiple industries.
If Blockchain can dramatically impact our financial system, then will this negatively impact VISA’s business down the road. Who knows? What I do know is that VISA has a number of very bright people and they are not merely sitting idly waiting to find out how well Blockchain technology works and the level to which consumers and businesses will adapt to it.
VISA has actually been investigating Blockchain’s potential for almost 2 years. Among some of the Blockchain related activity VISA has carried out was a 2015 investment in Chain.com, a Bitcoin Blockchain services provider.
More recently, VISA partnered up with BTL Group, a Vancouver, British Columbia, Canada technology company whose current business is focused on developing Blockchain technologies to disrupt and transform existing industries. The purpose of this arrangement is to explore potential applications for Blockchain technology in the financial services industry.
And it is not only VISA which is exploring how to advance Blockchain technology to grow its business. All you need to do is perform the following Internet searches:
· how will Blockchain impact the credit card processing industry?
· how will VISA use Blockchain technology?
· how will Mastercard use Blockchain technology?
· how will American Express use Blockchain technology?
· how will Union Pay use Blockchain technology?
Perform those searches and you quickly get the idea that Blockchain companies are scrambling to work with VISA et al. The companies know what they are doing. They have very bright minds and deep pockets!
If these companies were doing absolutely nothing in regard to Blockchain technology, investors would have every right to be concerned. I can assure you that is certainly not happening!
So for anyone concerned that VISA’s (and its major competitors) business is going to go the way of the dinosaur with the evolution of Blockchain technology….I don’t think that is going to happen. I think VISA stands to BENEFIT from the evolution Blockchain technology.
Here are a few additional sources of information worth reading.
Disclaimer: I have no knowledge of your circumstances and am not providing individualized advice or recommendations. I encourage you not to make any investment decision without conducting your own research and due diligence and consulting your financial advisor about your situation.
Disclosure: I am long V, MA.
I wrote this article myself and it expresses my own opinions. I am not receiving compensation for it and have no business relationship with any company mentioned.