Bitcoin has many possible use cases, just like cash or any other type of fungible asset. One thing that has become clear in the past year of cryptocurrency-related companies being created is there are many different potential applications of Bitcoin. In the early days of Bitcoin, one constantly highlighted benefit to the cryptocurrency was the simplicity of dealing with cross-border payments. People would always say it was great for facilitating capital flight in countries that were normally extremely restrictive, like China. But one use that is now coming to receive lots of interest is remittance payments.
Current Market Situation
Remittance payments are the transfer of money by a foreign worker back to their country of origin. By sending money to their home nation, they are able to support their family while still taking advantage of the increased economic opportunity present in some countries.
Facilitation of these payments is a business where having the lowest cost matters a lot, and it seems like Bitcoin is the best way to perform these transactions. The effect of this change could result in a huge change in the home countries receiving the payments.
It is estimated that remittance payments amount to more than three times the amount of foreign aid spent every year. This tells us there is a real opportunity for social change here.
Bitcoin is used to cut banks out of the market space by performing their own swap of currencies in the application. When a customer needs to convert their currency, the application purchases Bitcoin in the sending currency and sells that Bitcoin for the equivalent amount of the receiving currency.
The applications estimate costs to be reduced between 25-75%.
Dealing with Liquidity Issues
The biggest thing holding back these remittance payment companies from reaching a higher level of scale is the low liquidity of Bitcoin in comparison to the entire market. Bitcoin’s market capitalization at the time of publication is around $155 billion, which is less than half the size of the entire market.
This means that there is only so much business that can be carried out in Bitcoin before it becomes too costly in terms of its effect on the market and the transaction fees that result. In addition, the volatility of the coin makes it infeasible to hold Bitcoin for more than a few minutes, otherwise, there would be consistent losses/gains.
In the end, Bitcoin makes a great transfer mechanism but needs to reach a much higher market capitalization before it can fully capture the market.
Feature image by Slava Okhranchuk