It was a big surprise for many when Mastercard announced that it was acquiring CipherTrace. This pending acquisition is no doubt one of the strategies of Mastercard to position itself not only in the emerging crypto economy but also leverage crypto innovation to gain a competitive edge in its traditional playground.
According to Ajay Bhalla, president, Cyber & Intelligence at Mastercard, “[d]igital assets have the potential to reimagine commerce, from everyday acts like paying and getting paid to transforming economies, making them more inclusive and efficient”. He continued, “With the rapid growth of the digital asset ecosystem comes the need to ensure it is trusted and safe. Our aim is to build upon the complementary capabilities of Mastercard and CipherTrace to do just this.”
Mastercard, the acquirer, may be a card company but it is not new in the crypto space. In February, Mastercard announced that it would allow merchants to accept select cryptocurrencies on its network within the year. In July 2021, Mastercard also announced that it would be piloting the use of the stablecoin, USD coin (USDC), to enable merchants accept crypto but receive fiat. According to Mastercard, it has also invested in as well as partnered with Uphold, Gemini, and BitPay “to create crypto cards, the creation of new platforms to test and support Central Bank Digital Currencies, programs to support the broader use of blockchain technology and NFTs, and the potential to support select stablecoins [efn_note]Stablecoins are a type of cryptocurrency linked to an asset like the U.S. dollar that doesn’t change much in value. The majority of the dozens of stablecoins that currently exist use the dollar as their benchmark asset, but many are also pegged to other fiat currencies issued by governments like the euro and yen. As a result, the price of stablecoins fluctuates very little, unlike high-profile cryptocurrencies like bitcoin and ethereum that are prone to sudden ups and downs. The first stablecoin, created in 2014, was Tether, which many other stablecoins are modeled after. Users receive one token for every dollar they deposit. In theory, the tokens can then be converted back into the original currency at any time, also at a one-for-one exchange rate (Credit: TheConversation.com).[/efn_note] directly on its network.”
Boosting trust and introducing options in payments by leveraging crypto is one philosophy Mastercard clearly has. According to Mastercard’s crypto VP, Raj Dhamodharan, “[o]ur philosophy on cryptocurrencies is straightforward: It’s about choice”. He continued, “Mastercard isn’t here to recommend you start using cryptocurrencies. But we are here to enable customers, merchants and businesses to move digital value.”
CipherTrace, on its part, helps banks, cryptocurrency exchanges, government regulators, and law enforcement ensure safety and security through analysis and monitoring tools. Dave Jevans, CEO, CipherTrace, is excited about the deal and looks forward to CipherTrace scaling globally on the back of Mastercard’s reach.
Though the details of this Mastercard-CipherTrace deal are not disclosed and the acquisition remains pending until the end of the year, CipherTrace earlier got a $27million investment from Third Point Ventures. Chainalysis, another leading blockchain analysis firm, had also gotten $100 million in a Series D raise in June 2021, raising its value to $4.2 billion. These point to how vital trust and transparency have become to mainstream adoption of cryptocurrencies or crypto assets.
What does this scoop mean for the crypto asset buyer?
The early history of cryptocurrency and its largely anonymous nature have combined to bring about distrust for cryptocurrencies. This is why whatever helps to improve trust in cryptocurrencies is bound to aid its adoption—particularly institutional adoption and acceptance by regulators. The irony here of course is that cryptocurrencies are built on blockchain which is a trustless technology developed to solve the problem of distrust in transactions. And this is why the news of Mastercard possibly acquiring CipherTrace before the end of the year is significant. First, the acquisition will combine CipherTrace’s crypto analysis and Mastercard’s cybersecurity infrastructures to boost trust and security in the crypto economy. Second, Mastercard will use this acquisition to leverage digital assets to provide businesses, customers, and merchants with more choice making payments or completing transactions. Third, banks—if they don’t already do—may start considering repositioning themselves in the ecosystem as well. These three things will most likely have positive impact on crypto adoption, and consequently the crypto market capitalization.