At some point in the future, Bitcoin will either be an accepted form of exchange, or a forgotten fad. When we look back at the road taken toward main stream acceptance, July 2014 will be a significant month.
- July 18 - Dell Computers announced that US customers can now make payment by Bitcoin. Dell is working with Coinbase and is the largest ecommerce company in the world to accept Bitcoin.
- July 28 - Californian Congress Candidate Christina Gagnier announced that she will be accepting campaign donations in the form of Bitcoin.
- July 30 - Wikipedia starts accepting Bitcoin Donations through Coinbase.
Bitcoin has made its way into corporate and political America, as well as the world of Wiki. The Bitcoin community should be proud of these achievements. These are significant steps toward wide spread acceptance. If we want Bitcoin to be seen as a medium of exchange, then we need places in which it can be used as exchange.
In the past, news like this would have caused the price of Bitcoin to spike upward. The market sentiment toward the news has been muted. In the three weeks since the Dell announcement, the US Dollar price of Bitcoin (BTC/USD) has drifted down 6.05% from $626 to $588.
Many in the Bitcoin community were left wondering why the price BTC/USD price did not react to the good news. After all, nothing moves Bitcoin like news. Here at TFG we are less surprised at the market non-reaction.
All three developments are positive for Bitcoin, and will help it develop as a medium of exchange. While the news is good, we do not feel that it is ‘price sensitive’. There is nothing to suggest a change in the intrinsic value of Bitcoin. We do not believe that these developments will lead to more funds being invested in Bitcoin. The price of Bitcoin might move if a major corporation decided to hold Bitcoin as an alternate to cash. The biggest winner from this news is Coinbase
Any Bitcoin Spent, will be Converted to Cash Quickly
It is great that we now have more places to use our Bitcoin, but we expect that any Bitcoin received by these parties, will be sold for US Dollars very quickly. All three have expenses which need to be paid in cash. Holding Bitcoin creates a financial risk for them. It is in their best interest to convert any Bitcoin to US Dollars as quickly as possible. Holding BTC creates too much uncertainty.
In the 23 days since Dell agreed to accept Bitcoin, the BTC/USD price has fallen 6.05%. If you bought an item today using Bitcoin, it would cost more BTC than it did non July 18th. Conversely if on July 18th Dell received $1,000 worth of BTC and kept it as BTC, today it would be worth $939. That’s less money to pay employees, and suppliers, and less profit for shareholders. This loss could have been a gain if the price of BTC went up, but it’s a game of speculative risk which no corporation wants to play with their cash flows.
Why Accept Bitcoin?
If Dell, Christina and Wiki have no intention of accumulating Bitcoin, why accept it? The answer is marketing: The Bitcoin Community is a valuable market segment. We are more tech savvy than the general public, and more likely spend money on computers. When voting in an election, we are more likely to care if the candidate understands the laws surrounding the internet. We are more likely to use Wikipedia, and more likely to understand and support the community based culture it offers.
Wikipedia have stated that one of the reasons they agreed to sign up with Coinbase, is the ability to immediately convert any Bitcoin into US Dollars. After one week, Wikipedia received $140,000 in donations. That’s 237 BTC that have been sold for cash.
On May 14th, Christina Gagnier wrote an article for her company where she recommended Bitcoin as ‘a way to attract clients who like your forward-thinking nature in terms of taking alternative online payments.’ In the same article she advised those who accept Bitcoin to ‘ensure you understand how to get it converted to dollars pretty quickly’.
It is our view that this is bad for the price of Bitcoin. Selling BTC for US Dollars will cause supply to increase and price to fall. That’s just how the invisible hand works. The Wall St disagrees, they feel that the key to driving the price of BTC up, is for us to go out and spend more BTC. That will be true in the long term, but right now, spending will have the same effect as selling.
There needs to be some incentive for people to buy and use Bitcoin rather than cash. Merchants accepting Bitcoin will not drive the price up. Specially if they sell the Bitcoin for cash as fast as they receive it.
Bitcoin has a long journey before it is accepted a medium of exchange. Developments like this will help generate awareness, and give us ways to use our Bitcoin. If we want Bitcoin to be taken seriously as an alternate to currency, we need more ways to use it in place of currency. In the short run, this may cause the price to fall, but maybe a lower price is needed today for the long term success of cryptocurrencies.