Why bitcoin should be a ‘store of value’
- Stripe, one of the earliest adopters and supporters of bitcoin payments, has discontinued bitcoin payments
- Square recently added bitcoin buying services for Square Cash users, which might present a bigger opportunity for payments companies as more people realize bitcoin serves better as a store of value
Bitcoin was never a good payment mechanism.
Its original appeal was that it would become the email of money: an instant, cheap, global and borderless payments system. But after Stripe’s decision to abandon bitcoin payments, it’s clear that bitcoin as a store of value is more important than as a medium of exchange.
Stripe — the payments startup that powers payments for big companies like Lyft, Postmates and other mobile commerce companies, gig economy apps, software firms and nonprofits — added more evidence of that Tuesday when it said it will no longer provide support for bitcoin payments. Stripe was one of the earliest adopters and supporters of bitcoin payments, adding the capability in 2015 after a full year of testing.
“We’ve seen the desire from our customers to accept bitcoin decrease,” Tom Karlo, a product manager at Stripe, wrote on the company’s blog. “And of the businesses that are accepting Bitcoin on Stripe, we’ve seen their revenues from Bitcoin decline substantially. Empirically, there are fewer and fewer use cases for which accepting or paying with Bitcoin makes sense.”
Transaction confirmation times are getting longer, the failure rate of transactions in fiat currencies is getting bigger and fees are getting bigger. Basically, there wasn’t enough volume in bitcoin transactions to support the costs associated with having to process them. And it’s volatility, which doesn’t faze many enthusiasts of bitcoin and its technology, is catching up with it. “By the time the transaction is confirmed, fluctuations in bitcoin price mean that it’s for the ‘wrong’ amount.”
The announcement is significant because it calls bitcoin’s payments viability into question, particularly days after Visa, which has experimented in efforts to bring bitcoin payments to the “real” world with bitcoin debit cards, halted all transactions saying bitcoin isn’t a payments system player. It doesn’t necessarily kill the chances that bitcoin payments will take off, but just because you can do something a certain way, doesn’t mean you should or that it’s worth the effort.
And using bitcoin for payments takes a lot of effort. Consumers that have bitcoin still need to convert it back to dollars in order to even spend it.
“Converting crypto into fiat to make payments — there’s no reason to do it,” said David Sica, a principal at Nyca Partners. “On stripe’s end, it’s just hard to work with. There’s a lot of friction getting in and out of crypto. It’s slow and it’s expensive.”
Jim Robinson, a partner at RRE Ventures, disagreed.
“Until bitcoin gets its act together in terms of fees and clearing times, especially given no one wants to spend it versus holding it, given the potential upside, it just isn’t worth doing at all,” he said. “They’re also saying they’ll look at other digital currencies if and when they do those things better.”
Square, another payment processor, went in a different direction just a month ago when it added bitcoin buying capabilities to users of its peer-to-peer payment app, Square Cash. That may be the bigger opportunity, at this point, for payments companies as more people realize bitcoin serves better as a store of value than a payments system, Sica said.
“Presumably a portion of those people that hold bitcoin will want to put it in their bank account, and a portion would want to spend it without transferring it to their bank account first. A payments company doesn’t know if a payment is going to come but it knows there’s this big store of value out there.”
Bitcoin may not be an ideal transactional currency, given its high fees and slow processing speeds, but it’s still more valuable than other cryptocurrencies and coins, said Eran Eyal, CEO of Shopin.com.
“Bitcoin has proven to be quite resilient, generally trending upward despite volatility, so some retailers are attracted to bitcoin as a store of value and its potential to increase in value over the long term,” he said.
Circle, one of the earliest bitcoin exchange and wallet startups to emerge in the space, went in the opposite direction a little over a year ago when it began de-emphasizing its bitcoin services — sending its customers to then-competitor Coinbase instead — to focus on global mobile payments.
“Our continued use of bitcoin as a settlement token and network behind the scenes means that Circle will continue to be a leading participant in the digital currency markets and ecosystem, with our focus on getting more digital wallets to adopt public blockchains as open transaction settlement networks,” CEO Jeremy Allaire and president Sean Neville, said at the time.
Javier Paz, a senior analyst at Aite who focuses on blockchain and cryptocurrency, agreed that bitcoin’s best use is as a store of value — like valuable art, or land.
“The long term viability of bitcoin as a means to exchange remains in tact over the long term but over the short to medium term it’s going to be a bumpy ride,” he said. “Firms that use it don’t necessarily need to go along with the ride during this period but may choose to come back to it at a later point when transactions can happen quickly.”
Stripe expressed its optimism toward cryptocurrencies broadly, however — highlighting Stellar, Ethereum, Bitcoin Cash and Litecoin. It also said it isn’t ruling out the possibility that bitcoin can become a viable payments option one day.
“Bitcoin really opened the world’s eyes to what could be and now it’s TBD on whether some of these other coins will satisfy those things,” Sica said.