By Edward Blake @ renegadeinvestor.co.uk
Regardless of a merchants underlying ideological stance towards Bitcoin, there are many reasons why acceptance of Bitcoin through merchant processors such as ‘Bitpay’ and ‘Coinbase’, can provide both value for the merchant and increase the value of the underlying Bitcoin network as a whole in a relatively low risk way.
The basic understanding of ‘value’ is the regard that something is held to deserve; the importance, worth, or usefulness of something.
Simply by accepting Bitcoin as a method of payment, merchants are recognising the ‘value’ that Bitcoin can provide in many ways:
Benefits for merchants:
It opens up businesses to a wider market audience and pool of capital. The bitcoin market cap has seen highs of $14 billion and is projected by many analysts to be many multiples of this in the future. On top of this the user base for Bitcoin looks to be growing at an ever increasing rate.
It lowers their transaction costs for purchases with Bitcoin by 50%-66% based on a <= 1% transaction fee (volume dependant) compared to in the region of 2%-3% charged by debit card and Credit card companies.
Time is money – It saves merchants time on the processing of transactions. Please see my article Bitcon V UK Retail Banking for an example of how much time Bitcoin transactions can save.
Being at the forefront of Bitcoin adoption, merchants have opportunities for free advertising and media coverage not only in the mainstream media, but also in the alternate media and on social media platforms.
Merchants that adopt bitcoin for payments are seen as pioneering, trendy and in touch with the digital age, to a growing technologically orientated populace.
Many merchants have benefited from the support and passion of the Bitcoin community, that have been very supportive of companies that accept bitcoin. A good example of this is Overstock.com where Patrick Byrne CEO recently reported $1.6 million in bitcoin sales and states that bitcoin purchases are growing by 25% a month.
How does Bitcoin and the Bitcoin network benefit from merchant adoption:
It adds to the services and products that can be purchased using Bitcoin, thus increasing the ‘utility’ of the currency which is a major attribute that provides Bitcoin with value.
In the case of EuroPac Precious metals, Bitcoin gains from the perception of having a highly respected investor and public figure accepting payments in bitcoin. This increases its validity in the eyes of sceptics and people less informed on Bitcoin as a whole.
With every merchant acceptance of Bitcoin, it makes it more desirable purchase the currency because of increased utility and boosts the network effect that increases the chances of Bitcoin reaching large adoption.
The ‘Amount of transactions’ on the Bitcoin network is an important metric in analysing the health of the Bitcoin economy and one of the indicators used for potential investment. Increased merchant adoption will likely have the same effect on the amount of transactions.
Companies that accept bitcoin payments have the potential to create margin compression for other companies in the same industry, as reduced transaction fees enable savings to be passed onto consumers. This creates an incentive for all other companies in the same sector to adopt Bitcoin to stay competitive. This has the potential to create a snowball effect of facilitating Bitcoin payments within many industries.
Conclusion:
The important thing to look at here for all merchants and investors looking to adopt or invest in Bitcoin, is the underlying symbiotic relationship where both the merchants and the value of the Bitcoin network benefit from the adoption of Bitcoin by merchants.
One of the biggest criticisms I hear at the moment is the fact that merchants are not really supporting Bitcoin, or do not see the value of Bitcoin if they immediately convert back into fiat currency. But as we have seen above, there are a lot more factors to consider than just the currency conversion.
For me the conversion back into Fiat currency when adopting Bitcoin represents ‘Phase 1’ of merchant acceptance and companies like ‘BitPay’ and ‘Coinbase’ provide a good way to hedge against current price volatility that is undoubtedly present in the market and will be for the foreseeable future.
As Bitcoin matures leading to a possible increase in market cap and reduced volatility, this could potentially lead to ‘Phase 2’ where merchants begin to reduce the percentage of Bitcoin they convert back into fiat currency.
We have already began to see this at Overstock.com as CEO Patrick Byrne recently stated, they are now holding onto 10% of all Bitcoin transactions in Bitcoin.
‘Phase 2’ also has the possibility to alleviate the potential impact of another talked about problem, that converting Bitcoin transactions straight to fiat currency puts sell side pressure on the exchanges.
If you like Bitcoin or not, every merchant can find value by accepting bitcoin and by looking at the points above, everyone in the Bitcoin space can potentially benefit from increased merchant adoption. There is also a good case to be made that those merchants that do act early will potentially see the biggest amount of benefits and gains by accepting Bitcoin at this relatively early stage.
For further information and an in-depth look on the topic of Bitcoin and value, I highly recommend this excellent article by Javier Marti, Bitcoin expert, digital trend analyst and CEO of Bitcoin global Investments. ‘Do Bitcoins hold intrinsic value, or are they overvalued’