Bitcoin News – Retailers accept bitcoin but quickly convert to dollars | The Australian
REEDS Jewellers encouraged customers to pay for holiday gifts with bitcoin this year, but the family-owned business isn’t hanging on to the virtual currency for long.
Like many of the growing number of merchants that accept bitcoin, the regional jewellery store immediately converts the payments into real-world dollars. The strategy is aimed at protecting Reeds from big price swings that have plagued the virtual currency for much of the year — and underscores how many business owners remain skittish about the long-term prospects for bitcoin.
“We thought about (holding on to the bitcoin) but we’re just not willing to do it,” said Mitch Caan, marketing director for the Wilmington, North Carolina-based jeweller that has roughly 60 stores, mostly in the southeast.
The price of a bitcoin has tumbled since hitting a record $US1100 in November 2013 due to nagging concerns about potential regulation, the collapse of a large bitcoin exchange in Japan and the stigma that it is often used for illicit activity. One bitcoin was worth $US318.10 yesterday on the CoinDesk price index.
Launched in 2009, bitcoin is an electronic currency that is created on computers and traded between people who store it in digital wallets. Although it has a core base of devotees among the young and tech-savvy, bitcoin has yet to gain a foothold in the broader economy, largely because of its perceived instability.
Many merchants during the holiday shopping season said they were willing to accept bitcoin as payment — because it costs them little to do so and could even help them save on the fees they pay for credit card transactions — but expressed wariness about the risk involved in keeping the virtual currency for any length of time.
Many mainstream businesses have begun accepting bitcoin as payment for goods and services; recent additions include software giant Microsoft, computer maker Dell and travel-booking company Expedia. Those firms, like most businesses, convert their bitcoin sales into dollars immediately.
The issue of bitcoin’s price volatility “is the first question we get” from merchants that are interested in accepting bitcoin, says Adam White, director of business development for Coinbase, a San Francisco-based company that processes transactions for merchants who accept bitcoin.
Coinbase is one of several companies that take merchant bitcoin payments and immediately convert them to dollars, and then sell the bitcoin. It has 37,000 merchant customers and charges 1 per cent for transactions after a client’s first $US1 million ($1.23m) of bitcoin sales.
Financial institutions, by contrast, typically charge between 2 per cent and 3 per cent for credit card transactions.
Overstock.com is one of the few large companies that retains some of its bitcoin. The online retailer, which began accepting bitcoin in January, keeps 10 per cent of its revenue from bitcoin sales in the virtual currency even though those sales figures are falling short of projections.
The company, which originally predicted as much as $US15m in bitcoin sales revenue this year, now expects to generate just $US3m. It blames the shortfall on international sales that did not materialise.
“Volatility in bitcoin prices doesn’t say anything about the value of the underlying technology, which is a game-changer,” said chief executive Patrick Byrne.
Adam Penn didn’t want to worry about bitcoin’s wild price swings when he started accepting the virtual currency at his vegetarian diner last year, so he arranged to immediately convert all bitcoin payments to dollars.
The strategy means that he missed out on potential big profits when prices spiked last northern autumn, but he has also been shielded from the recent rout.
“I don’t want to subject myself to that kind of stress,” said Mr Penn, who owns Veggie Galaxy in Cambridge, Massachusetts.
United Way Worldwide began accepting donations in bitcoin this northern autumn, but “there is no way that we would take the financial risk” of holding on to the virtual currency, said chief strategy officer Evan Hochberg.
“There are people who are looking to make donations based on their passions for bitcoin and we wanted to engage that audience,” he said.
Mr White said Coinbase’s list of merchants was continuing to grow at a rate of 10 per cent each month despite bitcoin’s recent price drop. The “vast majority” of them converted their bitcoin into dollars, he said.
Despite merchant reluctance to keep the bitcoin, accepting the digital currency “gets them involved in the bitcoin ecosystem and starts the ball rolling,” says Stephanie Wargo, vice-president of marketing for BitPay, an Atlanta firm that processes bitcoin transactions for merchants. She says the vast majority of BitPay’s US customers choose to convert into dollars.
The decision to accept bitcoin has been good for Reeds Jewellers, which is donating 5 per cent of its holiday bitcoin sales to a charity that fights hunger. Since it started accepting bitcoin in June, bitcoin customers had been spending triple the amount being paid by customers who use old-fashioned cash or plastic, Mr Caan said.
Veggie Galaxy’s Mr Penn decided to keep about $US10 worth of bitcoin he received from a business associate. “It’s kind of fun just to have it,” he said.