Topic: Bitcoin volatility actually GOOD for business! (with proof) (Read 1762 times)
while the merchant likely won't want the risk (because there is risk) I think that services like Bitpay could benefit from this. If they benefit, they could lower fees (if you think about it this way, the fees are compensated by the "interest" Bitpay pays you for holding your funds for a while so they can benefit from this method). Imagine bitpay with 0% fees.
This concept only works if the merchant is a speculator himself. What if the price doesn't make a recovery?
Being a merchant is being a speculator. When you buy (or produce) stock, you have to believe to be able to sell it with a profit, but that's not guaranteed -- hence speculation. When you accept any currency for payment, you have to believe it keeps its value well enough to be able to restock and pay your other expenses, and to actually be allowed to keep it. This is not guaranteed either, and ranges from inflation and unexpected new taxes to outright disownment (see Cyprus).
There's no principal difference in which currency a merchant accepts. This analysis tries to compare the quantitative difference of being exposed to $ or BTC in the recent past, which of course is a poor indicator for the future.
There are worse flaws than assuming merchants are open to assume risk for a profit here. I think assuming a constant sales value in $ per day, payed in BTC, is a bad assumption. I'd expect BTC holders to prefer to spend on peaks, and pay in $ in valleys, which may undo the cost-averaging effect. Also I'd expect rising BTC sales over time, which will shift more sales to the time in 2014 which has a lesser performance.
So wrong. Merchants are not speculators, they are manufacturers or distributors or both.
Prices are stable in short term. If you are a retailer (distributor) you buy something wholesale and sell it retail. Your inventory liability is fixed. The cost doesn't go up and down every day. Nobody reprice on a day to day basis
If you are manufactor, you buy raw materials (COGS) and produce goods. You also expect stable prices.
bitcoin is good for business, especially for countries with high tax.
This concept only works if the merchant is a speculator himself. What if the price doesn't make a recovery?
Being a merchant is being a speculator. When you buy (or produce) stock, you have to believe to be able to sell it with a profit, but that's not guaranteed -- hence speculation. When you accept any currency for payment, you have to believe it keeps its value well enough to be able to restock and pay your other expenses, and to actually be allowed to keep it. This is not guaranteed either, and ranges from inflation and unexpected new taxes to outright disownment (see Cyprus).
There's no principal difference in which currency a merchant accepts. This analysis tries to compare the quantitative difference of being exposed to $ or BTC in the recent past, which of course is a poor indicator for the future.
There are worse flaws than assuming merchants are open to assume risk for a profit here. I think assuming a constant sales value in $ per day, payed in BTC, is a bad assumption. I'd expect BTC holders to prefer to spend on peaks, and pay in $ in valleys, which may undo the cost-averaging effect. Also I'd expect rising BTC sales over time, which will shift more sales to the time in 2014 which has a lesser performance.
This sounds great in theory, but it only works for businesses with enough cash on hand that they can pick and choose when to cash out their bitcoins. There a lot of businesses that this approach wouldn't work for: coffee shops, for example, probably operate on fairly thin margins. Maybe corporate chains aren't as bad if they're partially supported by the parent company, but that's not guaranteed to be how it works.
If you're in a business with a fairly tight profit margin and you need to make payroll in a few days or a week, you may be forced to sell off bitcoins at a loss. A prime example of this would be the last few weeks of December last year: the price of bitcoins dropped from the high in the thousands down several hundred dollars in a matter of weeks. No business that really wants to stay in business wants to take the chance that they will suddenly have half as much money as they previously had.
Even now in 2014, your post is invalidated by the fact that the price of bitcoins continues to drop. It was around $600 a couple months ago, maybe more. Now it's $438.20, according to Bitstamp. The volatility of bitcoins is good for only two groups of bitcoin users: investors willing to buy and hold for a long period of time, and day traders. Day traders can profit off volatility regardless of which direction the price goes, so the volatility is great for them. As for the investors - well, if you bought bitcoins say, in January of last year, you're still way better off despite the lower price since the beginning of the year since it was around $13 back then.
If you're in a business with a fairly tight profit margin and you need to make payroll in a few days or a week, you may be forced to sell off bitcoins at a loss. A prime example of this would be the last few weeks of December last year: the price of bitcoins dropped from the high in the thousands down several hundred dollars in a matter of weeks. No business that really wants to stay in business wants to take the chance that they will suddenly have half as much money as they previously had.
Even now in 2014, your post is invalidated by the fact that the price of bitcoins continues to drop. It was around $600 a couple months ago, maybe more. Now it's $438.20, according to Bitstamp. The volatility of bitcoins is good for only two groups of bitcoin users: investors willing to buy and hold for a long period of time, and day traders. Day traders can profit off volatility regardless of which direction the price goes, so the volatility is great for them. As for the investors - well, if you bought bitcoins say, in January of last year, you're still way better off despite the lower price since the beginning of the year since it was around $13 back then.
if they have good credit then can get advance cash through a merchant program, I heard they give you cash in trade for your transactions but who knows by doing that it can really cut into the profits.
That's called factoring where you get advanced on POs. But the buyer (PO issuer) needs good credit ratings
where can you get this factoring service?
From a factor. Google factor financing
I made a mistake by saying they advanced you on POs. Its advanced on your Invoices. Had it backwards
This concept only works if the merchant is a speculator himself. What if the price doesn't make a recovery?
This sounds great in theory, but it only works for businesses with enough cash on hand that they can pick and choose when to cash out their bitcoins. There a lot of businesses that this approach wouldn't work for: coffee shops, for example, probably operate on fairly thin margins. Maybe corporate chains aren't as bad if they're partially supported by the parent company, but that's not guaranteed to be how it works.
If you're in a business with a fairly tight profit margin and you need to make payroll in a few days or a week, you may be forced to sell off bitcoins at a loss. A prime example of this would be the last few weeks of December last year: the price of bitcoins dropped from the high in the thousands down several hundred dollars in a matter of weeks. No business that really wants to stay in business wants to take the chance that they will suddenly have half as much money as they previously had.
Even now in 2014, your post is invalidated by the fact that the price of bitcoins continues to drop. It was around $600 a couple months ago, maybe more. Now it's $438.20, according to Bitstamp. The volatility of bitcoins is good for only two groups of bitcoin users: investors willing to buy and hold for a long period of time, and day traders. Day traders can profit off volatility regardless of which direction the price goes, so the volatility is great for them. As for the investors - well, if you bought bitcoins say, in January of last year, you're still way better off despite the lower price since the beginning of the year since it was around $13 back then.
If you're in a business with a fairly tight profit margin and you need to make payroll in a few days or a week, you may be forced to sell off bitcoins at a loss. A prime example of this would be the last few weeks of December last year: the price of bitcoins dropped from the high in the thousands down several hundred dollars in a matter of weeks. No business that really wants to stay in business wants to take the chance that they will suddenly have half as much money as they previously had.
Even now in 2014, your post is invalidated by the fact that the price of bitcoins continues to drop. It was around $600 a couple months ago, maybe more. Now it's $438.20, according to Bitstamp. The volatility of bitcoins is good for only two groups of bitcoin users: investors willing to buy and hold for a long period of time, and day traders. Day traders can profit off volatility regardless of which direction the price goes, so the volatility is great for them. As for the investors - well, if you bought bitcoins say, in January of last year, you're still way better off despite the lower price since the beginning of the year since it was around $13 back then.
if they have good credit then can get advance cash through a merchant program, I heard they give you cash in trade for your transactions but who knows by doing that it can really cut into the profits.
That's called factoring where you get advanced on POs. But the buyer (PO issuer) needs good credit ratings
where can you get this factoring service?
This sounds great in theory, but it only works for businesses with enough cash on hand that they can pick and choose when to cash out their bitcoins. There a lot of businesses that this approach wouldn't work for: coffee shops, for example, probably operate on fairly thin margins. Maybe corporate chains aren't as bad if they're partially supported by the parent company, but that's not guaranteed to be how it works.
If you're in a business with a fairly tight profit margin and you need to make payroll in a few days or a week, you may be forced to sell off bitcoins at a loss. A prime example of this would be the last few weeks of December last year: the price of bitcoins dropped from the high in the thousands down several hundred dollars in a matter of weeks. No business that really wants to stay in business wants to take the chance that they will suddenly have half as much money as they previously had.
Even now in 2014, your post is invalidated by the fact that the price of bitcoins continues to drop. It was around $600 a couple months ago, maybe more. Now it's $438.20, according to Bitstamp. The volatility of bitcoins is good for only two groups of bitcoin users: investors willing to buy and hold for a long period of time, and day traders. Day traders can profit off volatility regardless of which direction the price goes, so the volatility is great for them. As for the investors - well, if you bought bitcoins say, in January of last year, you're still way better off despite the lower price since the beginning of the year since it was around $13 back then.
If you're in a business with a fairly tight profit margin and you need to make payroll in a few days or a week, you may be forced to sell off bitcoins at a loss. A prime example of this would be the last few weeks of December last year: the price of bitcoins dropped from the high in the thousands down several hundred dollars in a matter of weeks. No business that really wants to stay in business wants to take the chance that they will suddenly have half as much money as they previously had.
Even now in 2014, your post is invalidated by the fact that the price of bitcoins continues to drop. It was around $600 a couple months ago, maybe more. Now it's $438.20, according to Bitstamp. The volatility of bitcoins is good for only two groups of bitcoin users: investors willing to buy and hold for a long period of time, and day traders. Day traders can profit off volatility regardless of which direction the price goes, so the volatility is great for them. As for the investors - well, if you bought bitcoins say, in January of last year, you're still way better off despite the lower price since the beginning of the year since it was around $13 back then.
if they have good credit then can get advance cash through a merchant program, I heard they give you cash in trade for your transactions but who knows by doing that it can really cut into the profits.
That's called factoring where you get advanced on POs. But the buyer (PO issuer) needs good credit ratings
yeah I couldnt quite rememeber whats its called but I thought it could help the situation, but like you said it depends on credit rating. Plus they make money over The Pos charging a fee on each sale you make
This sounds great in theory, but it only works for businesses with enough cash on hand that they can pick and choose when to cash out their bitcoins. There a lot of businesses that this approach wouldn't work for: coffee shops, for example, probably operate on fairly thin margins. Maybe corporate chains aren't as bad if they're partially supported by the parent company, but that's not guaranteed to be how it works.
If you're in a business with a fairly tight profit margin and you need to make payroll in a few days or a week, you may be forced to sell off bitcoins at a loss. A prime example of this would be the last few weeks of December last year: the price of bitcoins dropped from the high in the thousands down several hundred dollars in a matter of weeks. No business that really wants to stay in business wants to take the chance that they will suddenly have half as much money as they previously had.
Even now in 2014, your post is invalidated by the fact that the price of bitcoins continues to drop. It was around $600 a couple months ago, maybe more. Now it's $438.20, according to Bitstamp. The volatility of bitcoins is good for only two groups of bitcoin users: investors willing to buy and hold for a long period of time, and day traders. Day traders can profit off volatility regardless of which direction the price goes, so the volatility is great for them. As for the investors - well, if you bought bitcoins say, in January of last year, you're still way better off despite the lower price since the beginning of the year since it was around $13 back then.
If you're in a business with a fairly tight profit margin and you need to make payroll in a few days or a week, you may be forced to sell off bitcoins at a loss. A prime example of this would be the last few weeks of December last year: the price of bitcoins dropped from the high in the thousands down several hundred dollars in a matter of weeks. No business that really wants to stay in business wants to take the chance that they will suddenly have half as much money as they previously had.
Even now in 2014, your post is invalidated by the fact that the price of bitcoins continues to drop. It was around $600 a couple months ago, maybe more. Now it's $438.20, according to Bitstamp. The volatility of bitcoins is good for only two groups of bitcoin users: investors willing to buy and hold for a long period of time, and day traders. Day traders can profit off volatility regardless of which direction the price goes, so the volatility is great for them. As for the investors - well, if you bought bitcoins say, in January of last year, you're still way better off despite the lower price since the beginning of the year since it was around $13 back then.
if they have good credit then can get advance cash through a merchant program, I heard they give you cash in trade for your transactions but who knows by doing that it can really cut into the profits.
That's called factoring where you get advanced on POs. But the buyer (PO issuer) needs good credit ratings
This sounds great in theory, but it only works for businesses with enough cash on hand that they can pick and choose when to cash out their bitcoins. There a lot of businesses that this approach wouldn't work for: coffee shops, for example, probably operate on fairly thin margins. Maybe corporate chains aren't as bad if they're partially supported by the parent company, but that's not guaranteed to be how it works.
If you're in a business with a fairly tight profit margin and you need to make payroll in a few days or a week, you may be forced to sell off bitcoins at a loss. A prime example of this would be the last few weeks of December last year: the price of bitcoins dropped from the high in the thousands down several hundred dollars in a matter of weeks. No business that really wants to stay in business wants to take the chance that they will suddenly have half as much money as they previously had.
Even now in 2014, your post is invalidated by the fact that the price of bitcoins continues to drop. It was around $600 a couple months ago, maybe more. Now it's $438.20, according to Bitstamp. The volatility of bitcoins is good for only two groups of bitcoin users: investors willing to buy and hold for a long period of time, and day traders. Day traders can profit off volatility regardless of which direction the price goes, so the volatility is great for them. As for the investors - well, if you bought bitcoins say, in January of last year, you're still way better off despite the lower price since the beginning of the year since it was around $13 back then.
If you're in a business with a fairly tight profit margin and you need to make payroll in a few days or a week, you may be forced to sell off bitcoins at a loss. A prime example of this would be the last few weeks of December last year: the price of bitcoins dropped from the high in the thousands down several hundred dollars in a matter of weeks. No business that really wants to stay in business wants to take the chance that they will suddenly have half as much money as they previously had.
Even now in 2014, your post is invalidated by the fact that the price of bitcoins continues to drop. It was around $600 a couple months ago, maybe more. Now it's $438.20, according to Bitstamp. The volatility of bitcoins is good for only two groups of bitcoin users: investors willing to buy and hold for a long period of time, and day traders. Day traders can profit off volatility regardless of which direction the price goes, so the volatility is great for them. As for the investors - well, if you bought bitcoins say, in January of last year, you're still way better off despite the lower price since the beginning of the year since it was around $13 back then.
if they have good credit then can get advance cash through a merchant program, I heard they give you cash in trade for your transactions but who knows by doing that it can really cut into the profits.
Bitcoin volatility index that Pymnts launched, it may be work for invesments. See: http://www.pymnts.com/data-research/#.U2jt8oF_tUU
This sounds great in theory, but it only works for businesses with enough cash on hand that they can pick and choose when to cash out their bitcoins. There a lot of businesses that this approach wouldn't work for: coffee shops, for example, probably operate on fairly thin margins. Maybe corporate chains aren't as bad if they're partially supported by the parent company, but that's not guaranteed to be how it works.
If you're in a business with a fairly tight profit margin and you need to make payroll in a few days or a week, you may be forced to sell off bitcoins at a loss. A prime example of this would be the last few weeks of December last year: the price of bitcoins dropped from the high in the thousands down several hundred dollars in a matter of weeks. No business that really wants to stay in business wants to take the chance that they will suddenly have half as much money as they previously had.
Even now in 2014, your post is invalidated by the fact that the price of bitcoins continues to drop. It was around $600 a couple months ago, maybe more. Now it's $438.20, according to Bitstamp. The volatility of bitcoins is good for only two groups of bitcoin users: investors willing to buy and hold for a long period of time, and day traders. Day traders can profit off volatility regardless of which direction the price goes, so the volatility is great for them. As for the investors - well, if you bought bitcoins say, in January of last year, you're still way better off despite the lower price since the beginning of the year since it was around $13 back then.
If you're in a business with a fairly tight profit margin and you need to make payroll in a few days or a week, you may be forced to sell off bitcoins at a loss. A prime example of this would be the last few weeks of December last year: the price of bitcoins dropped from the high in the thousands down several hundred dollars in a matter of weeks. No business that really wants to stay in business wants to take the chance that they will suddenly have half as much money as they previously had.
Even now in 2014, your post is invalidated by the fact that the price of bitcoins continues to drop. It was around $600 a couple months ago, maybe more. Now it's $438.20, according to Bitstamp. The volatility of bitcoins is good for only two groups of bitcoin users: investors willing to buy and hold for a long period of time, and day traders. Day traders can profit off volatility regardless of which direction the price goes, so the volatility is great for them. As for the investors - well, if you bought bitcoins say, in January of last year, you're still way better off despite the lower price since the beginning of the year since it was around $13 back then.
While you are right that the rational merchant who accepts Bitcoin will wait for "highs" to sell the Bitcoin for fiat,...
Waiting for a high to sell is not rational, it is speculative.
They aren't mutually exclusive. If I am accepting Bitcoin as payment for goods or services, it would behoove me to try to sell the Bitcoin in regular peaks and not in valleys. Look at the following sentence where I said that they are forced to speculate:
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The merchant is open to even greater risk by having not only the normal risks associated with running their business, but of also BEING FORCED to play the Bitcoin market unless they want to lose money by accepting Bitcoin.
While you are right that the rational merchant who accepts Bitcoin will wait for "highs" to sell the Bitcoin for fiat,...
Waiting for a high to sell is not rational, it is speculative.
Your analysis is wrong. While you are right that the rational merchant who accepts Bitcoin will wait for "highs" to sell the Bitcoin for fiat, there is a whole lot more to the story. Bitcoin volatility is bad for business unless the business owner is trying to set aside a very significant amount of the Bitcoin received as payment to capitalize on long-term upward market trends.
The merchant is open to even greater risk by having not only the normal risks associated with running their business, but of also BEING FORCED to play the Bitcoin market unless they want to lose money by accepting Bitcoin.
Buyers are also rational beings too. They will wait for the "highs" in order to purchase the item. This erodes any profit to be made by the seller by selling on "highs." The seller will beed to constantly play a cat and mouse game simply in order to break even. This still happens regardless of whether the Bitcoin price is fixed or pegged to fiat. If the Bitcoin price is fixed at an average Bitcoin/fiat conversion rate, in the end, the seller will always lose. If the Bitcoin price is fixed at higher than an average conversion rate, this can help mitigate losses, but the higher above the average price that it is, the more it will disincentivize buyers from using Bitcoin over fiat. Merchants can also have the price in Bitcoins listed at automatically updated current market conversion rates based on the fiat price of the good. This is pretty much all we see today, at it probably works best to reduce risk to the seller while also not putting people off form using it. However, unless the merchant automatically converts Bitcoin to fiat at that conversion rate at the time of sale, the merchant must still play the market to break even because of buyers buying goods when the value of Bitcoin is more favorable.
The merchant is open to even greater risk by having not only the normal risks associated with running their business, but of also BEING FORCED to play the Bitcoin market unless they want to lose money by accepting Bitcoin.
Buyers are also rational beings too. They will wait for the "highs" in order to purchase the item. This erodes any profit to be made by the seller by selling on "highs." The seller will beed to constantly play a cat and mouse game simply in order to break even. This still happens regardless of whether the Bitcoin price is fixed or pegged to fiat. If the Bitcoin price is fixed at an average Bitcoin/fiat conversion rate, in the end, the seller will always lose. If the Bitcoin price is fixed at higher than an average conversion rate, this can help mitigate losses, but the higher above the average price that it is, the more it will disincentivize buyers from using Bitcoin over fiat. Merchants can also have the price in Bitcoins listed at automatically updated current market conversion rates based on the fiat price of the good. This is pretty much all we see today, at it probably works best to reduce risk to the seller while also not putting people off form using it. However, unless the merchant automatically converts Bitcoin to fiat at that conversion rate at the time of sale, the merchant must still play the market to break even because of buyers buying goods when the value of Bitcoin is more favorable.
Volatility is good for speculants and traders not for Johny in America, neither for John in Deutschland. They are paying their taxes to the speculants, when buying bitcoins. To much truth? Is there an automatic system that the shop owner or privateperson dont pay their tax to the speculant? Not knows yet. Therefor governments prevent the volatility of their currency by their given power of a Central Bank. But the Bitcoin with their volatility is still better as a FIAT with their inflation.
I like your truth much more, its more for the public, what they should know.
I like your truth much more, its more for the public, what they should know.
I have run a business (2 in fact) but the point is not that bitcoin acceptance and hlding would work for all. As I said a couple of times - payment processors are there for a reason.
However, the point is volatility in the price actually helps overcome the potential for (small) price drops, especially over time.
Clearly its not right for all businesses especially with a tight cash flow. However that doesn't apply to all. Even bitpay said some of their customers keep some of the bitcoin without cashing it out.
Bitcoin’s future is still uncertain so no business would depend on this strategy unless they could manage it. All I am saying is the oft-repeated phrase of volatility is bad is not entirely true.
However, the point is volatility in the price actually helps overcome the potential for (small) price drops, especially over time.
Clearly its not right for all businesses especially with a tight cash flow. However that doesn't apply to all. Even bitpay said some of their customers keep some of the bitcoin without cashing it out.
Bitcoin’s future is still uncertain so no business would depend on this strategy unless they could manage it. All I am saying is the oft-repeated phrase of volatility is bad is not entirely true.
Sounds like OP never ran a business and has no concept of cashflow
You should assume the business is not making a profit. Any margin on the product is used to pay wages, loans and stock. Cashflow is not that great, any volatility in value costs the business in additional borrowing costs meanwhile.
Usually a payment service steps in, takes on this rate risk for a percentage cost but since credit cards also have a cost to them then this is a fair comparison. BTC compares best on global sales?
Usually a payment service steps in, takes on this rate risk for a percentage cost but since credit cards also have a cost to them then this is a fair comparison. BTC compares best on global sales?
In essence, you assume that the exchange rate will rise consistently with occasional small drops and you require the merchant to hold bitcoins rather than restocking inventory whenever the exchange rate has dropped. You require the merchant to speculate on the exchange rate.
No, not at all. In fact what I am saying is that if the exchange rate remains (on average) the same, but continues to have volatility, the volatility actually results in the merchant having more coins (on average). All it requires is not selling coins when the price dips well below average. The more the volatility, the lower the rate the merchant could sell at and still be at least as well off as other alternatives.
But in fact, even if they do sell at low points, it balances out over a short period of time (see the fixed 7-day sale real-life data).
If someone needs to sell every day or two then they might as well use a payment provider and take the 1% hit.
The fixed 7-day sale example is exactly the case where the merchant does not want to care what the current exchange rate is.
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How about a real life scenario in which a merchant starts selling on December 1, 2013?
Sure. I updated the spreadsheet with this example. The numbers here, for the period starting 1 Dec 2013 and ending 31 March 2014:
case 3) Exchanging all coins once a week regardless of the exchange rate: Exactly 97.3% of fiat value (still better than credit card)
case 4) Exchanging within a 30-day window (requires speculation): 97.5% (average)
case 5) Hold for 7 days, then wait until rate reaches at least 97%: 101.2% (average)
case 6) Hold and never sell: 65.9% (average)
Note case 3 is the exact percentage since it's a use case in the spreadsheet; the other numbers are averages, so they will be close, but not necessarily exact. And it varies with actual number of sales, of course.
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