One of the most common complaints levied at bitcoin and other cryptocurrencies is their lack of fungibility when it comes to purchasing actual physical goods and services — what is the point in a currency that you can’t actually spend?
A number of companies have aimed to crack the conundrum by attaching a Visa prepaid debit card to bitcoin wallets — it’s a simple way to connect digital currencies with real-world spending power. However, last week such initiatives including BitPay, Cryptopay and Bitwala were effectively shut down on when Visa terminated the membership of WaveCrest, the Gibraltar-based issuer behind all of these companies' bitcoin debit cards.
Visa did not attribute its shutdown to the use of bitcoin, but the incident is a further reminder — as if one was needed — that cryptocurrencies' volatility extends beyond their dramatic pricing swings. Businesses aiming to bridge crypto and fiat currencies are always going to be in a precarious situation since they require cooperation with entities that are most threatened by the introduction of nontraditional currencies.
Here's Visa's official statement on the matter: “We can confirm that WaveCrest’s Visa membership is being terminated due to continued non-compliance with our operating rules. All WaveCrest-issued Visa card programmes will be closed as a result. Visa has other approved card programs that use fiat funds converted from cryptocurrency in a number of jurisdictions. The termination of WaveCrest’s Visa membership does not affect these other products.”
It's clear that the concept of a Visa crypto card is not inherently against Visa rules, but it's not clear whether it was WaveCrest's approach to the product that prompted Visa's action.
It would appear that the bitcoin companies that offered these cards had almost zero notice, despite Visa indicating that WaveCrest had been noncompliant for some time. A statement on Bitwala’s website references that this was a hasty decision — "Unfortunately, neither Visa nor WaveCrest were able to provide us or you with more time to prepare for this announcement." This sends a clear warning to any future crypto prepaid card that Visa calls the shots. Visa giveth and Visa taketh away.
It also raises the question — why didn’t any of these companies have a plan B? Was the concept of a bitcoin debit card so fragile that a single weak link could shut down the entire product? This speaks once again to the lack of support available from mainstream issuers, hence the reliance on a single point of failure with an obscure issuer in a distant British territory.
Bitcoin's next step
There is considerable momentum behind cryptocurrencies at the moment, despite them having little discernible purpose other than speculation. The desire to make them fungible in the physical world will likely only gain in momentum. However, incumbents can be fickle masters and as the value and support behind cryptocurrencies grows, they are going to ensure that their place at the table remains reserved.
The sudden nature of the termination has left the prepaid crypto cards dangling with the central case for their businesses in jeopardy. There may be alternative issuers they can work with — an FAQ section of the WaveCrest website indicates that it partners with Metabank in the U.S. and Home Trust in Canada. And other networks could potentially be substituted to replace Visa.
However, this will take time to negotiate contracts and to have new cards issued — these companies are already in a nascent stage of development. Having to start effectively from scratch may be too much to ask.