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Will Shopify’s New Cryptocurrency Partnership Widen Its Moat?

By Leo Sun – May 26, 2020 at 8:30AM

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The e-commerce services company expands its crypto payment options beyond bitcoin.

Shopify's (SHOP 2.11%) platform allows its merchants to accept payments in bitcoin, Litecoin, Ethereum, and over 300 other types of cryptocurrencies. It recently expanded that reach by partnering with cryptocurrency payments processor CoinPayments, which helps merchants process 1,800 types of cryptocurrencies.

Shopify claims the partnership will "make cryptocurrency transactions easier and more accessible while reducing transaction fees." CoinPayments CEO Jason Butcher declared the partnership would deliver a "seamless process for anyone looking to do business using cryptocurrencies."

CoinPayments has processed over $5 billion in cryptocurrency payments since its founding in 2013 and provides clients with various APIs, shopping cart plugins, and digital wallets. Shopify's cryptocurrency expansion isn't surprising, but will this new partnership widen its moat?

Physical bitcoins on top of a smartphone.

Image source: Getty Images.

How many people actually use cryptocurrencies for payments?

Cryptocurrencies like bitcoin have gained a lot of attention among speculators in recent years. However, the broad price swings -- which have ranged from about $500 to $19,000 for bitcoin over the past four years -- made them tough to accept as mainstream payments.

Last year, a survey by the Foundation for Interwallet Operability (FIO) found that only 30% of cryptocurrency owners actually used the coins for payments. The vast majority held the coins as investments. A more recent survey by the Economist Intelligence Unit and digital payments platform found just 34% of cryptocurrency users primarily used digital currencies for online payments.

Crypto Radar recently claimed 6.2% of Americans owned bitcoin, and 7.3% planned to buy some in the future. Yet the overwhelming majority (64.8%) didn't own any bitcoin and had no plans to buy any coins in the future. Another 21.8% hadn't even heard of bitcoin.

Those percentages indicate cryptocurrency payments don't appeal to mainstream shoppers yet. Nonetheless, many major companies -- including Microsoft, AT&T, and Expedia -- already accept bitcoin payments, though it's unclear how many customers actually choose those options.

Another part of its cryptocurrency expansion

Shopify also recently joined the Facebook (META 4.10%)-led Libra Association, which wants to serve underbanked markets with its Libra cryptocurrency. That decision was surprising, since Libra had already lost many of its top members after regulators opposed its development.

Piles of physical bitcoins on a mirrored circuit board.

Image source: Getty Images.

However, Libra is being developed as a "stablecoin" which is pinned to fiat currencies instead of mining algorithms. That stability could make Libra a more viable payment option than bitcoin and other volatile cryptocurrencies, and tethering them to Facebook's Calibra digital wallet, Messenger, and WhatsApp could quickly expand its reach.

CoinPayments also processes payments in other top stablecoins like TrueUSD, USD Coin, and Gemini Dollar (GUSD). These currencies could be more appealing to merchants and shoppers, who can sleep easier knowing the value of their payments won't plummet or skyrocket overnight.

Shopify's partnerships with the Libra Association and CoinPayments could pivot its merchants from bitcoin toward less volatile cryptocurrencies. That process might be glacial and won't move the needle anytime soon, but it could enhance its broader platform -- which already serves over a million businesses in more than 175 countries.

Shopify's cryptocurrency partnerships should also widen its moat against Adobe's (ADBE 2.14%) Magento, which recently partnered with cryptocurrency payments platform Utrust to provide its crypto transactions to over 250,000 merchants. Magento is arguably Shopify's toughest competitor since it's tightly integrated into Adobe's other cloud-based analytics, marketing, and advertising tools.

A smart long-term bet on a speculative market

The cryptocurrency market remains a niche one, but it could still grow from $1.03 billion to $1.4 billion between 2019 and 2024, according to Markets and Markets. Shopify probably doesn't expect cryptocurrency payments to overtake traditional payment methods anytime soon, but it also doesn't want to be left behind a crucial tech curve. If top cryptocurrencies like bitcoin stabilize and stablecoins gain ground, Shopify's recent partnerships could widen its moat against Adobe and other rivals while planting the seeds for future growth.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook and Shopify. The Motley Fool recommends Adobe Systems. The Motley Fool has no position in any cryptocurrencies mentioned. The Motley Fool has a disclosure policy.

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