It has been nearly ten years since Bitcoin gained its first enthusiasts, but the cryptocurrency continues to act like some indie rock band whose 40-year old performers claim are just one hit away from becoming mainstream. Last month, Swiss retailer Digitec-Galaxus, a major Swiss online shop, announced that it would allow Swiss customers to use Bitcoin and other select cryptocurrencies to buy goods.
Bitcoin websites such as Bitcoinist breathlessly called it “a major milestone for bitcoin adoption” and noted how other Swiss retailers will likely follow suit especially since Bitcoin has become popular in Switzerland. But the fundamental fact is that we have seen this same song and dance already.
Bitcoin proponents can talk about how this or that venue is adapting Bitcoin and how this is proof that cryptocurrencies are on the rise. In reality, Bitcoin has failed to become mainstream. People are buying this “currency” not to use it as a means to buy goods, but as a means to speculate, earn actual currency, and dump Bitcoin off onto the next sucker.
Bitcoin’s Adaptational Failures
We have been hearing about major companies adapting Bitcoin over the past few years. But what has not been reported so heavily is later news of said companies dropping Bitcoin usage.
There are numerous examples of this. Steam, the largest online gaming storefront in the world, announced in December 2017 that it would be dropping Bitcoin after trying it out for over a year due to high fees and volatility. Last September, Goldman Sachs dropped plans for investing in cryptocurrencies, citing that steps would need to be taken which were outside of their control.
Many of these storefronts do not adapt Bitcoin because they view it as a way of making money directly. Rather, they see it as a marketing tool which lets them show to younger consumers that they are forward thinking and technologically connected. Digitec itself admitted as much with its decision to adapt Bitcoin.
But over the long term, these storefronts decide that Bitcoin is not worth the hassle, especially since fewer people are using it. Bloomberg found last August that the amount of Bitcoin being sent to merchant processors fell from $411 million in September 2017 to $60 million in May 2018. Some people are using Bitcoin to buy big-ticket items such as furniture or laptops, while some crypto companies use Bitcoin to pay off vendors such as lawyers and landlords. But most people who obtain Bitcoin use it as speculative vehicle, hoping that it will rise in value and they can get rich.
Not a Currency
So why has Bitcoin not lived up to its hype? There are plenty of articles online which have elaborated on the problems with the cryptocurrency, from the fact that it is really heavily centralized by a group of miners to its environmental and energy impact. But there are two simple numbers which should be enough to explain why storefronts have quietly dropped it. As of April 29, 2019, Bitcoin’s value is $5142.10. On May 5, 2018, Bitcoin’s value was $9,800. In short, Bitcoin’s value has fallen by about 48% in a single year.
Try to imagine what would happen if the U.S. dollar or the euro or the yen or any currency maintained by a civilized state fell by 48% in a single year. The result would be mass economic chaos, and I would half expect the President, whether Obama or Trump or Biden, to be literally dragged out of the White House by an angry mob. I would note that this would be just as true if the dollar rose by 48% in a single year.
Some people are betting on this volatility in the hope that there will be another boom and they can become rich. But businesses do not like volatility as Steam proved. In fact, many of these businesses like Digitec which say they accept Bitcoin do not actually accept Bitcoin. Instead, they use a third party processor which immediately turns the Bitcoins into real currency that will keep a stable value.
Bitcoin does need to rise or fall in value as much as it needs to prove that it can stay stable so that customers know that one Bitcoin will purchase in a month will be about what one Bitcoin will purchase today. Until that happens, companies will not truly accept Bitcoin, and those few that do will use a third-party processor. And as long as companies as a whole choose to stay away from Bitcoin, it will never be mainstream even if there is another Bitcoin boom.