Announcement header or pricing ticker

Bitcoin Market Notes: FOMC Reaction and Western Union

Amid earnings season and FOMC announcements, financial markets provided a series of important data points yesterday. While bitcoin’s price remained mostly rangebound, its interaction with the broader financial markets illustrated the increasing impact of macroeconomic events on bitcoin markets. Outside of digital currencies specifically, the latest earnings announcement from Western Union highlighted the regulatory difficulties that all US companies tied to money transmission are encountering.

FOMC Reaction

Bitcoin continues to react to macro stimuli. Yesterday’s FOMC announcement removed negative language from their economic outlook and indicated the Fed would not be immediately tapering asset purchases. Shortly after it was released, bitcoin saw a sell-off that corresponded directly with the strong gold correlation and inverse USD correlation we’ve pointed out previously. While digital currency offers a number of unique dynamics relative to traditional financial instruments, there is unquestionably a contingent of market participants acting on macroeconomic news.

fomc announcement
One of these things is… just like the others

Regulatory Costs Send Western Union Tumbling

Western Union’s earnings announcement yesterday sent the company’s stock down roughly 15%. The global money transfer company saw consumer-to-consumer transfers increase 10% in the third quarter, with revenue down 1% “as transaction gains were offset by the impact of previously implemented price reductions.”

Notably, the company expects compliance expenses to increase from 2.5% of revenue in 2013 to a projected 3.5-4.5% in 2014, citing it as a core factor preventing the company from increasing profitability next year. According to their earnings report,

“The Company has increased its investments in compliance considerably in recent years, significant additional investment in 2014 is now anticipated in light of the current environment and our internal reviews of the increasingly complex and demanding global regulatory requirements.”

The implications of this for bitcoin companies are numerous. For one, the company is seeing enough competition to lower consumer prices in a number of regions, squeezing their margins. Most of this competition is presumably from other traditional money transmission services like MoneyGram or even newer players in the space like Xoom. In a relatively commoditized market like money transfer, consumers are likely to seek the least expensive alternative. Moreover, WU’s performance illustrates how regulatory compliance is an increasingly difficult and expensive hurdle for the entire money transfer industry, of which digital currency still remains a relatively small (albeit particularly vocal) sub-sector.

Schedule a Demo

"*" indicates required fields