Fitch Ratings says crypto is far from mainstream, but has potential benefits

Fitch Ratings is taking a look at recent payments giants' steps into cryptocurrency.

A new report from the credit rating agency says the increase of crypto activity from firms may not translate to a short term effect on credit profiles, but it could modernize the financial system over time.

Fitch cited recent moves from PayPal, Square, Visa, Mastercard and Moneygram in its report. These payments firms have recently added crypto products to their offerings. Fitch says this is expanding cryptocurrency use cases for consumers, but it's too early to surmise if it'll lead to widespread adoption.

The report recapped payments platforms' key steps into crypto during 2020. It called PayPal's addition of crypto buying and selling, "one of the first real world, non-trading related use cases at scale for crypto in the US." In the short term, it won't mean much for credit profiles, according to Fitch, but adding crypto capabilities might still be a net gain for payments platforms.

"We expect strategic crypto investments to have a limited near-term effect on credit profiles, given modest capital deployed and the long ramp time," said Fitch. "However, adding crypto capabilities opens up incremental revenue streams for these companies, even if the return on investment over time and compliance risks are uncertain."

Though Fitch said crypto is still far from mainstream, it has the potential to improve settlement speeds, lower fees and eliminate intermediaries to enable round-the-clock money movement. In order to realize these benefits, Fitch says, the right regulation is needed.

"Tighter regulation could limit certain benefits described previously, particularly if digital currency issuers are required to obtain banking charters, maintain reserves and/or other strict banking-like requirements," said the firm.

About Author

Aislinn Keely joined The Block in the summer of 2019. She is a member of the outlet's policy team, holding down the legal beat. Before The Block, she lent her voice to the NPR affiliate WFUV, where she reported and anchored newscasts in addition to some podcast work. Aislinn is a proud Fordham Ram and editor-in-chief emerita of its newspaper. When she isn't writing or reporting, Aislinn is running and rock climbing.