Bitcoin, and to a lesser extent other cryptocurrencies, have been in the news this year with skyrocketing valuations.
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Some of the currencies have seen 1,000% to 4,000% increases this year, with many wondering if it ever will stop growing. The magic $10,000 level for Bitcoin was broken just a few weeks ago, and it is on a march to $20,000 now.
According to Joseph Borg, North American Securities Administrators Association, a voluntary organization devoted to investor protection, some people are taking out mortgages and loans on credit cards to get in on the action in the hope of a quick profit. A financially very dangerous game!
And this week, to give Bitcoin some “legitimacy” in the financial world, Bitcoin futures trading started on the Cboe Global Markets on Sunday and is expected to begin on CME Group’s futures exchange this coming Sunday (December 17).
Without getting into the complex world of financial investment products, some people hope futures trading will reduce the volatility of Bitcoin, yet others say it will make it worse.
If that is even possible!
Acceptance by Retailers
One of the biggest problems with investing in cryptocurrencies is what to do with it. While in some countries, acceptance of Bitcoin is slowly gaining ground among retailers, the eCommerce giants have mostly stayed away from it.
Newegg to date is probably one of the largest marketplaces to accept Bitcoin. Most others are smaller niche eCommerce retailers.
Now that doesn’t mean you can’t convert your Bitcoin to fiat currency. Fiat currency is government-backed legal tender such as US Dollars, British Pound, Euro, etc.
Most Bitcoin can be transferred to regular bank accounts from trading platforms, converted to gift cards including Amazon, Walmart, eBay, etc. using several gift card vendors that accept Bitcoin, or cashed out at ATMs that process bitcoin transactions.
However, transactions that convert Bitcoin to fiat currency incur user-paid network and mining fees. Meaning, if you own $100 in Bitcoin, converting Bitcoin to fiat currency can cost anywhere from 2% to 25%, with many faster methods being in the higher range.
In some ways, this compares to the retail exchange of currency. For example, if you travel, you may have had to get some Euros from your U.S. Dollars.
If you go to the Airport, the exchange rate offered is one of the worst, maybe as much as 10% difference from the official exchange rate.
Credit card users may pay a 3% exchange fee on purchases. And going to an ATM to pull out cash in Europe from a U.S. Bank, bank fees can include a fixed fee (often $3 to $5 per transaction) plus a transaction percentage.
And this fee is fundamentally a problem with Bitcoin for many merchants. Users marginalize the cost of using Bitcoin because of the rise of value in the cryptocurrency.
Equally, merchants typically try to convert the cryptocurrency to fiat currency immediately to minimize cash flow impact since a businesses’ costs are paid for in fiat currency. That usually incurs some fee too.
Acceptance by More Retailers Could Change the System
And here is where it gets interesting. The infamous WHAT IF question.
What if more retailers started to accept Bitcoin? Would the volatility go down as goods are now priced on a Bitcoin basis vs. a fiat currency basis?
But who is going to lead the charge? Amazon? They did reserve a bunch of domain names with cryptocurrency names in them, but most people believe those are just to protect their trademark.
And that is where eBay comes into play. As a pure marketplace platform, eBay wouldn’t have to deal with wild fluctuations of Bitcoin as only buyers and sellers would trade in the cryptocurrency, but eBay would collect all fees in a fiat currency.
Popular eCommerce payment processor Square quietly rolled out a Bitcoin feature to select beta testers in November. So other established companies are tinkering with the idea as well.
But by far, eBay would be the largest platform should it decide to accept Bitcoin. And eBay has now publically stated they are seriously looking at accepting cryptocurrencies.
In an interview with Yahoo Finance, Scott Cutler, senior vice president of eBay Americas, said the online marketplace is “seriously considering” accepting Bitcoin, but “we’re not quite there yet.” (Yahoo did not provide a transcript of the interview, it only mentioned it in a news story)
eBay As The Leader in eCommerce Cryptocurrency Acceptance?
If the marketplace would implement this idea, it would undoubtedly be huge news. A global online marketplace with over 170 million users accepting a cryptocurrency could move the needle to wider acceptance by others.
Right now we can only speculate on how this might work, but clearly, the volatility risk of accepting the cryptocurrency would rest with the seller.
Another issue eBay would have to settle is how to deal with dissatisfied buyers. There is no good clawback system with cryptocurrencies, so if eBay had to refund a buyer on a cryptocurrency purchase, it would have to have some means of charging the seller with a credit card.
Or would eBay just not offer a Money Back Guarantee on cryptocurrency transactions, stating that the risk of the transaction stays with the buyer and seller? That might create confusion and that is something the company probably wants to avoid.
The questions and problems on how to implement cryptocurrency transactions on eBay are multi-fold. If eBay would make accepting Bitcoin a reality, do expect it to come with limitations including transactional limits.
Lots would have to be learned in the real world before making it more widely acceptable.
But it could lead to a normalization of cryptocurrency markets if more marketplaces and retailers accept the currency. And eBay might play a role in this process.
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