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Elon Musk announced this week that Tesla has started accepting bitcoin as a form of payment for all models of its cars in the United States.
From a transactional perspective, the billionaire’s crypto-related ads switched to bitcoin. This is quite evident in the statistics showing that searches for keywords related to cryptography on Google, such as “investing in bitcoin” and “how to negotiate cryptography”, have seen a jump of more than 1,015% in search volume since January, according to with data from Semrush.
But some crypto experts say this is an unstable choice for Tesla and could prevent other companies from following it. Here are four main factors that make cryptocurrency an expensive and impractical payment method for businesses.
Volatility
With a market capitalization that now exceeds $ 1 trillion, bitcoin quickly acquired the status of global digital storage of value and reserve assets. But hourly price fluctuations make it extremely volatile, impractical and an expensive payment method for companies, according to Megan Kaspar, co-founder of the crypto investment firm Magnetic. This makes money a “poor medium of exchange” and a risky payment method. Sudden price fluctuations can negatively impact the customer’s ability to pay in bitcoin, she said.
A fintech expert said Musk’s decision is more like an experiment that will measure the potential revenue and type of customers for his products. This step should be considered one of the automaker’s tests for its payment mechanisms, he said.
“Elon Musk is asking people to buy a depreciating asset (a car) with a valuing asset, although volatile,” said Luke Sully, CEO of Ledgermatic, a specialist in treasury fintech. “The underlying price volatility is the most immediate risk for traders.”
It all comes down to how comfortable companies are in accepting a currency that has so much volatility in a single day, said Anthony Denier, CEO of Webull. “You can see some companies making the leap, but most companies are fiscally conservative and are not going to join a trend like that so quickly,” he said.
High transaction fees
To ensure that transactions go through cryptographic networks, a customer is usually charged a “mining” or “network” fee. Now, regardless of the dollar amount traded, whether it is $ 5 or $ 100, this mining fee is standard for all transactions. The fee varies according to network demand and is currently around $ 20. That element of payment makes bitcoin blockchain fees unsustainable as a form of payment, according to Kaspar.
The taxman treats bitcoin as property, not currency
The Internal Revenue Service adds another layer of complication for merchants who are taxpayers in the U.S. because it considers bitcoin a property, not a currency, said Eric Christensen, director of payments at e-commerce company Digital River. “This means that when you accept bitcoin, you record its value on the transaction date as the basis for that property. When selling it, you can see a gain or loss, which must be reported to the IRS.”
The regulation of the digital wallet is a gray area
A major challenge at this point is that there are only a handful of banks globally willing to provide stored digital resources to the merchants they work with, according to Felix Shipkevich, founder of the law firm Shipkevich PLLC. “The regulation of digital wallets is very gray at this point,” he said, adding that there are not many jurisdictions that regulate the use of the digital wallet between merchants and their consumers.