Letter #43: Walmart Accepts Litecoin….Or Not?

Read now to learn why Walmart should accept a cryptocurrency….just maybe not Litecoin as its first choice.

  
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Dear Readers,

Financial markets love big announcements. The stock market, as an example, rises and falls almost weekly as various government agencies announce fiscal policies and as large corporations announce earnings and forecasts. Cryptocurrency markets are just as susceptible to big announcements. Remember the twenty-plus percent gains seen within hours of Tesla making its large Bitcoin purchase publicly known? The crypto space saw a similar event earlier this week when news came out that Walmart had allegedly begun a partnership with the Litecoin foundation to incorporate payments that use the cryptocurrency at all of its stores.

It seemed believable to many. After all, rumors that the company was going crypto have been circulating for weeks after it was announced that Walmart is looking to hire a senior director with expertise in cryptocurrency and blockchain. On top of that, the press release was initially published on GlobeNewswire, one of the largest platforms used by corporations to make groundbreaking news public.

There were without a doubt several tells however that could have clued observers into the fact that the press release was a hoax. For starters, it referenced a non-authorized Walmart website. Plus, the news was never published on Walmart’s actual corporate website. Perhaps the most telling giveaway though was Walmart’s supposed first choice to use Litecoin of all cryptocurrencies for payments.

Litecoin certainly could be successful to some degree as a payment system. The cryptocurrency’s code is largely derived from that of Bitcoin with a few small tweaks: the maximum number of Litecoin is eighty-four million to Bitcoin’s twenty-one million and a block is confirmed every two and a half minutes compared to ten minutes on the Bitcoin blockchain. However, it lacks the same level of popularity as larger cryptocurrencies like Bitcoin and Ethereum. And it does not offer quick and inexpensive transactions like the cryptocurrency Nano or like the Lightning Network, a layer-2 solution on the Bitcoin blockchain. In short, Litecoin doesn’t seem to be the most likely choice as a payment method for the world’s largest retailer.

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Bitcoin: The Clear Choice

There are a variety of reasons why Tesla, MicroStrategy, Square, and others have all invested significant sums of money in Bitcoin for their balance sheets. And why hundreds of thousands of merchants around the globe accept Bitcoin payments for their goods and services. Bitcoin has the most liquid market as far as cryptocurrencies are concerned, meaning that a large corporation like Walmart could very easily move large sums of money into and out of the asset on a daily basis. Additionally, Bitcoin has the surest claim to being a high quality store of value among cryptocurrencies. Its total supply is capped at twenty-one million and it has a significant first mover advantage compared to copycat cryptocurrencies released afterwards with their own supply caps.

But how does this apply to Walmart? What benefits or use cases could the megastore realize by incorporating Bitcoin? I’d argue that there are several:

Bitcoin for Customers and Suppliers

Money is central to all businesses, but none (outside of financial institutions of course) use more of it than Walmart. Walmart has been the world’s biggest company by revenue since 2014 and saw nearly $560 billion dollars of total revenue in 2020. Not even the coronavirus pandemic and all its associated problems could slow down the Walmart money machine.

Since Walmart is the biggest company by revenue, it’s probably safe to say that Walmart is also one of the largest payers of credit card transaction fees, which commonly average two to three percent per transaction. Walmart could easily save billions of dollars a year by electing to allow customers to make purchases with Bitcoin instead of credit cards. And because Walmart is known for having “Always Low Prices”, the company could share those savings with its customers.

Hundreds of billions in revenue also requires hundreds of billions of dollars worth of goods with which to stock shelves. Walmart works with thousands of suppliers around the globe and transacts in dozens of fiat currencies. While the company likely pays less percentage-wise in exchange and bank fees to move money around the world than individuals do, significant savings and time could be saved by switching global payments off of the fiat system and onto the Bitcoin blockchain. Fiat-based global transfers can take several days or longer to complete, compared to about sixty minutes for Bitcoin transactions. And billions of dollars can be transferred over the blockchain for a few dollars or less.

Bitcoin for Treasury

Bitcoin as a reserve asset seems to be working. Just ask MicroStrategy, which to date has purchased billions of dollars worth of Bitcoin and converted almost all of the dollars sitting in its treasury into Bitcoin. MicroStrategy made this choice for one simple reason. In the words of the company’s CEO, Michael Saylor:

We just had the awful realization that we were sitting on top of a $500 million ice cube that’s melting.

For context, that quote comes from September of last year, months before the consumer price index, which is the U.S government’s official inflation gauge, hit over five percent per month.

Walmart is currently sitting on a veritable war chest of cash, with over $22 billion in its corporate treasury. While highly liquid, that cash is stored with financial institutions that are paying Walmart a tiny amount of interest, just like they pay you and me. Prices are going up, while the value of Walmart’s war chest is plummeting. Perhaps they should take a page out of MicroStrategy’s book after all.

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But How Could Walmart Incorporate Bitcoin Across Its Global Infrastructure?

As we’ve discussed, Walmart’s business has a lot of moving pieces. So you could be forgiven for thinking that incorporating Bitcoin across its global infrastructure would take a lot of work. That said, I see a couple of ways that Walmart could relatively easily and cheaply incorporate Bitcoin-based payments:

The Lightning Network

The Lightning Network works on top of the Bitcoin blockchain and enables thousands of transactions to be processed simultaneously, with each transaction costing users a fraction of a penny. Walmart could partner with a Lightning Network-based payment processor like Strike, which has already worked with the country of El Salvador to incorporate cheap Bitcoin transactions at the national level.

Walmart Pay & The Walmart Wallet

If you’ve used Walmart’s app recently, likely a given thanks to the explosion of touchless payments brought on by the coronavirus pandemic, you’ve noticed that Walmart has already incorporated a significant level of payment functionality:

If Walmart were hesitant to use a 3rd party provider to facilitate Bitcoin payments, I can envision the company expending time and resources to add cryptocurrency wallet functionality on top of the wallet infrastructure that already exists in its app.

Walmart & Bitcoin: A Match Made In The Future

I am a firm proponent of a future in which people, companies, and governments use Bitcoin on a daily basis. While this week’s cryptocurrency announcement from Walmart turned out to be fake, a real announcement from the company regarding incorporating Bitcoin and cryptocurrency might be closer than we think.


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This advice applies to both traditional and crypto markets.


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This is not financial advice. This newsletter and related content are for informational purposes only. Cryptocurrencies, stocks, and similar assets can be risky. Always do your own research before making any sort of investment.