Along the Bitcoin success roadmap, among the regulatory potholes and IT growing pains, lies an essential piece in the puzzle: merchant acceptance of Bitcoin.
Although the author disagrees with those who claim that Bitcoin must be widely used and accepted to gain universal traction (case in point: the $7T of extant gold which nobody seems to own nor use to buy things), he does agree that a digital currency such as Bitcoin would undoubtedly benefit from merchant adoption as well.
The main selling point that companies such as BitPay and Coinbase use to convince new merchants to accept magic internet money is that they can remove the dreaded volatility factor, and conveniently convert any proffered bitcoins in the form of fiat currency such as dollars, euros, or yen.
When asked why they prefer to go through these financial intermediaries instead of accepting bitcoin outright, most companies reply that they are in the business of “x” and not currency speculation. “x,” of course, can be anything: selling tires, installing electrical outlets, transporting goats. Regardless of the industry, business owners prefer to stick to their personal expertise, which does not include speculating on currency.
This week, the Venezuelan government tacitly admitted that its currency is in free fall. Close to triple figure inflation year-on-year is dissolving the savings of the country while simultaneously wreaking political and financial havoc.
This example reminds us that merchants are not just goods and services output machines, but rather, that they are traders. The engine of economic activity is the trade, whereby one individual who can produce something at a lower marginal cost offers it to another, in exchange for something of perceived value.
In reality, all merchants are also currency speculators as well. Given a relatively stable currency, a merchant may have the luxury of forgetting this essential half of the equation, and convincing him or herself that the money they accept is some kind of universal constant. But a quick page turn back into recent history reveals the plight of merchants as they struggle to survive, forced to be shrewd in both their business practices as well as the medium of exchange which they choose to accept in return.
The author recalls visiting Zimbabwe in the early 2000’s, and finding himself in need of a camera battery. Having already accumulated a stash of Zimbabwean dollars at the official rate (which was about 4x more expensive than the black market rate), and being currency agnostic, he found a vendor in the streets who was willing to sell him the necessary battery, but who discounted heavily the price in USD, even beyond the black market rate. He was so terrified of the value loss he would incur from accepting Zimbabwean dollars, that he was willing to take what appeared to be a financial hit, but in reality, allowed him the self-indulgence to simply go home at the end of the day, rather than speculating once more by converting his Zimbabwean dollars into something with a greater potential to preserve value (Rice? Bread?). He certainly didn’t want to hang on to it too long. The cost of goods in stores at this point was being updated multiple times per day.
Our favorite camera battery seller in Zimbabwe didn’t want to be a currency speculator. But chances are that if he moved to New York he’d make a better Wall Street analyst than bodega vendor. Such is the plight of the merchant, who must spin what often feels to be an ever-increasing number of fragile plates.
Bringing this back to the developed world, the message might fall flat at first, but the fact that people who sell things must also decide what is an acceptable exchange medium is all-embracing. To the merchants of the world, take note. You are already speculating on currency. You accept it, you save it, you spend it, and if you are lucky you put aside some for your daughter’s education. You should care about the inflation rate, whether 2%, 200%, or -5%.
You may not want to hold bitcoin today, but keep a close eye on your currency of choice. You are a currency speculator whether you like it or not, and you owe it to yourself to be proficient in money matters. In time, you might even find it prudent to keep 10%, 20%, or more of the bitcoin you accept. You may not be a hedge fund, but this choice is potentially in your interest and – more importantly – certainly within your purview.
The issue of currency is a current event, and how much is issued is your concern too.