Will crypto wages catch on?

Companies like San Francisco-based Bitwage and London-based Mode Global are rolling out payroll services for companies that want to offer their employees and contractors the option to be paid in bitcoin or other digital assets.

The crypto payroll services are emerging in an era of explosive growth for digital currencies, especially the biggest crypto, Bitcoin, and all things blockchain.

As of January, an estimated 46 million Americans, or about 17 percent of adults, own bitcoin. That is three times as many as three years ago, according to New York Digital Investment Group, NYDIG.

It is in this environment that Bitwage, backed by Silicon Valley venture capitalist Tim Draper, positioned itself as an early mover, launching in 2014. But the company has recently faced some competitive headwinds.

In 2019, Square, now rebranded as Block, aimed to attract new business from wage-earners by offering direct deposit services for bitcoin. Along the same lines, Coinbase launched a service this October, with music distributor UnitedMaster under which artists on that platform can be paid in crypto.

Bitwage CEO Jonathon Chester, who quit his job at Oracle to co-found the company, acknowledges that the entrance of powerful players like Block and Coinbase is a significant competitive development, but he points out that their aims are more limited than those of his company.

"We offer a full range of payroll, tax, retirement account and benefits services, and our clients can have any portion of their wages deposited in any digital wallet of their choosing," he said.

In addition to wage deposit, Bitwage offers crypto 401K services and other benefits administration. With more than 50,000 individual clients and 2,000 corporate users, the company has operations in the U.S., Europe, Latin America and Asia.

Early last month, Long Beach, California-based crypto retirement services firm ITrust Capital said it hit more than $3.5 billion in total transaction volume for its IRA digital asset offering, the only product the company sells. ITrust's transactions have climbed 75% from $2 billion in July. To sell the service, ITrust has put display ads on investment oriented websites and is also running ads on music streaming services as well as Bloomberg TV and CNBC.

The amount of wages processed by Bitwage since the onset of the COVID-19 pandemic has more than doubled to $140 million, Chester said in an interview last week. The company is profitable and had 18% net margins last year, he says.

Expansion has been particularly strong in Latin America, where countries like Argentina have had runaway inflation and people are seeking ways to protect themselves by putting their earnings in digital assets.

In a blog post on Bitwage’s web site Draper said: "Bitwage makes it easy for enterprises to use Bitcoin for payments of all kinds by simplifying payroll, accounting and taxes anywhere in the world."

In an October convertible debt crowdfunding effort, Bitwage sought to raise nearly $1.19 million, brought in $1.5 million within 55 hours and ultimately closed the deal just shy of $2.1 million. The company didn't respond to a request for its total capital raised.

The Texas payroll services firm PaySolv HR is Bitwage's payroll processing partner, handling tax withholding, benefits administration and other service functionalities.

Tax reporting capability has become increasingly important after President Biden signed his $1 trillion infrastructure bill, a provision of which requires reporting to the IRS of all crypto transactions in excess of $10,000. The legislation defines digital assets to be the same as cash.

And crypto fintech Mode early last month announced that it will be launching a test of a new service, Bitcoin Payroll, in partnership with payroll services company Payescape, the first such effort in the U.K.

"Bitcoin Payroll is another step to breaking down the barriers to mainstream Bitcoin adoption," Mode CEO Ryan Moore said in a release. "By automating the process of converting monthly pay deductions into Bitcoin, Mode aims to make it easy and convenient for people in the U.K. to gain access to digital assets."

In one of a raft of similar announcements from sports luminaries recently, NFL wide receiver Odell Beckham, Jr. said late last month that he would be taking his multi-million dollar salary from the Los Angeles Rams in Bitcoin as part of a deal with Cash App, a unit of Block. Green Bay Packers quarterback Aaron Rodgers struck a similar deal with Cash App earlier.

On another front, New York Mayor-elect Eric Adams and Miami Mayor Francis Suarez both say they want at least some of their pay to be in digital assets. They’re using the compensation move as a bid to make their cities more crypto-friendly.