With a habit of spreading big news and big discoveries around the web, the media has spread a notion that bitcoin and cryptocurrencies overall are significant for customers and businesses. Yes, Bitcoin has an impressive market capitalization of nearly $6.5 billion – the highest among the fairly large number of cryptocurrencies out there.
According to the Bank of England report on the economics of digital currencies, there is very little evidence of digital currencies being used as units of account. The report suggests that digital currencies are used by relatively few people, for whom data suggest that digital currencies are primarily viewed as stores of value and are not typically used as media of exchange. For that reason, most bitcoin users have to purchase it on third-party exchanges using traditional currency. Meanwhile, it actually doesn’t make sense for users to keep bitcoins as value storage or as units of account. According to the National Bureau of Economic Research, bitcoin has too high exchange rate volatility and negligible correlation with traditional currencies to be valuable for those purposes.
As a result, the users are actually much better off performing exchanges and storing value in traditional currencies. It is not just a tradition and coincidence that large companies are still not favorable towards ‘popular’ digital currencies. As Liberty Street Economics reports, with support of FRB examples, even big companies like Dell, Microsoft, and Expedia never actually deal with bitcoins even though the payments to them can be done in cryptocurrencies. It’s their third parties who receive payments for them in bitcoin, and who for a certain fee, forward payments in traditional currencies to their retailers. There is certainly wise reasoning behind the decision of major players to keep their hands off such an unstable currency. They prefer to leave the risk-taking to businesses that are willing to deal with it. The middlemen are usually companies like Coinbase and BitPay along with others, who take bitcoin from customers, convert them into cash and then deposit the cash in partners’ bank accounts.
“I would say as a general trend most of our larger business do choose a settlement in 100% U.S. dollars because that’s how they do their accounting and finance,” said Tony Gallippi, co-founder and executive chairman of BitPay, to Time.
As Time also suggests, the reason is probably that large players simply don’t trust bitcoin as a stable store of value. Since Dell began accepting bitcoin through Coinbase in July 2014, bitcoin’s value has dropped by over 54%. If the company chose to actually keep the cryptocurrency, the revenue from bitcoin sales would have been cut in half.
Patrick Byrne, the CEO of Overstock.com and a big bitcoin supporter, doesn’t believe bitcoin is worth embracing in full. Overstock.com doesn’t even accept bitcoin itself, rather it has partnered with Coinbase and moreover, keeps 90% of bitcoin transaction revenue in dollars.
Clearly, one should not be blinded by the popularity of bitcoin and the fact that some big companies accept it as a form of payment. The reality is that those companies don’t actually trust and believe in the cryptocurrency enough to get their hands ‘dirty’ dealing with bitcoin themselves. It’s just the convenience for some groups of customers and the ease of implementing the acceptance (thanks to Coinbase and BitPay) that they sign up for it. One of the main reasons could be the fact that bitcoin is extremely volatile at the moment and can’t be trusted to hold stable value. As Time very fairly notes, “that’s the metric we should be using to measure bitcoin’s success, not by counting the number of merchants with a Coinbase link on their checkout page”.