Wednesday, August 10, 2022
Cash FlowReasons to avoid Cryptocurrencies in your Small Business for...

Reasons to avoid Cryptocurrencies in your Small Business for Now

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My how a year can change the landscape of our financial instruments. In 2017 bitcoin and its brethren were set to conquer the world. Blockchain technology would be de rigueur across industrial sectors. The mania topped as the price of bitcoin hit $19,783.06, and has recently hit an all-time low of $3,592.09.

As one would expect, the market for any instrument takes no prisoners, and all that could be seduced were in at the highs, only to see their fate, hedge funds, and personal savings shattered. Such is life in the speculative markets. While bitcoin has been beaten down, many do not think that it is going away. Blockchain still offers alleged hack proof technology that can work its way into the financial sector. But how about your business. Will the ubiquitous coin play a role in your retail or online sales? For our purposes, bitcoin will be used as a proxy for the cryptocurrency markets. Let’s take a look.

The larger companies as mentioned in the chart above have sufficient resources to accept and control transactions involving bitcoins. Obviously, there are advantages to using the cryptocurrency, or these giants wouldn’t be in the game, but should you incorporate into your sales and marketing? Let’s take a look at the pros and cons.

Pros

No Transaction Fees: One of the most sanguine features of utilizing bitcoin for transactions is that there is no middle-man, hence no fees. A traditional payment processor like Visa or MasterCard charges you fees. This will be more beneficial to the larger firms mentioned above, as they will process more transactions than you. Still something worth thinking of.

Additional Payment Option: If your business has a chance to increase sales through bitcoin ahead of your competition, then you will want to consider this. Depending upon your industry, some will likely have more customers who prefer to pay in bitcoin than others. According to bill payment provider Fiserv, “As additional payment methods become available, and digital safety becomes more of an issue, the willingness and desire to use cryptocurrency will likely rise.”

Cons

Market Volatility:  This is probably the biggest area of concern for those that accept bitcoin as a payment method. As we all know, the bitcoin market has been subject to high volatility in the past year. The issue is somewhat analogous to the exotic foreign exchange markets, in that huge swings in the price of the underlying currency can and will affect your profits. If bitcoin crashes, you may be forced to wait to convert that currency until its price levels out or risk taking a loss on those transactions. And, if you invoice your customers on terms that allow deferred payment, you will lose value there as well. It isn’t realistic or practical that you can constantly change product pricing to account for these fluctuations.

Unregulated Markets: Perhaps the biggest reason behind the fall in cryptocurrencies is the lack of regulation. Bitcoin as an underlying security trades on unregulated markets throughout the world. The only regulated market for a cryptocurrency is in the U.S. by the CME and CBOE for futures contracts on the underlying bitcoin itself. For you as a small business owner, this will have no bearing on your business, as you will not need to hedge and shouldn’t speculate in the bitcoin futures market.

At the end of the day, the cons definitely outweigh the pros as a reason to not get your business involved in bitcoin transactions. That is the current environment. As things change and advance, these ideas can be revisited and perhaps used in the future, but not for now.

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