Bitcoin: Is it a currency, is it a commodity, is it a security? Why are bitcoin investors still pushing its adoption by Amazon and eBay when its practicality as a currency lies in doubt?
With bitcoin yo-yoing around $10,000, there is little doubt the digital currency has hit mainstream consciousness; as an idea it has currency. But is it really an actual currency? Unlike gold, cryptocurrencies such as bitcoin have no physical existence.
The personal loan marketplace LendEDU has surveyed existing bitcoin owners and found 39.54% view the cryptocurrency as a security and 31.56% see it as a commodity. None of the investors chose ‘currency’ as a description. Tellingly, 28.9% of respondents said they were unsure how to classify the cryptocurrency.
The original concept behind bitcoin was a digital currency outside the control of any markets or nations. But only 8.16% of bitcoin investors say they plan on using it “for transaction or repurchases”. Instead, 21.81% described bitcoin as “a long-term store of value, like gold or silver.”
Yet, bitcoin investors and enthusiasts undoubtedly want to present bitcoin as a ‘proper’ currency. Why? It’s interesting to see how close the cryptocurrency came to tanking as recently as September. It’s also interesting that supposedly a major confidence fillip came from the rumour that bitcoin would be accepted by Amazon as payment.
On September 2nd 2017, bitcoin’s value had just reached a then record $4,900; but by the 15th this had plummeted to $3,290, wiping over $1,600 dollars off its value. That’s because Jamie Dimon, CEO of banking giant JPMorgan, said in September: ‘If you were a drug dealer, a murderer, stuff like that, you are better off doing it in bitcoin than US dollars.”
This hard talk, plus a Chinese bitcoin “ban”, started a sudden fall in the value of the currency that many sceptics had been foretelling with relish for some time. But then something happened to reverse bitcoin’s declining fortunes. In October rumours circulated that Amazon would finally relent and accept bitcoin, perhaps making an announcement with their October 26th Q3 results which reported revenues of $43.7 billion, driving up their share price by 7%. That rumour helped push the value of a bitcoin back up to a new record of $5,800 by mid-October.
The speculation was fuelled by a global petition on Change.org, saying “Amazon.com should accept bitcoin and litecoin cryptocurrency as payment methods ASAP”. Investors such as James Altucher, the American hedge fund manager and venture capitalist, stated: “I’m certain that Amazon will accept bitcoin. They have no choice. And this will be the tipping point that will create massive generational wealth unlike we’ve ever seen before.”
Why were many bitcoin owners so keen to see it accepted by the e-commerce giant? We all know most bitcoin owners are not actually splurging their ‘satoshis’ on Kindles and Wii Switches. The majority undoubtedly see it as an investment.
The answer is because Amazon’s acceptance confers respectability – and more importantly still – predictability on the currency. So some investors argue that if the mere rumours of Amazon adopting bitcoin were enough to give it such a boost, imagine if it actually does? It would send a signal of legitimacy that would broaden the user base still further, encouraging new investors. A virtuous circle.
And there’s more payment-related respectability hovering in the wings. Scott Cutler, the senior vice president of eBay Americas, recently stated cryptocurrency payments could be part of the auction site’s future plans: “This is a trend that everybody is talking about, but sadly, at eBay, we don’t currently accept bitcoin as a form of payment. We’re seriously considering it as these cryptocurrencies become more of a mainstream payment instrument, but we’re not quite there yet.”
Looking into the futures
Perhaps there’s no rush to get there though. The volatility that saw bitcoin lose almost $10,000 in one month, remains a major stumbling block. One of the most prominent sites to actually accept bitcoin, the online games provider Steam, stopped accepting it last month because of the difficulties caused by yo-yoing bitcoin values, problematic even in the short time it takes to process a payment.
Today, it’s bitcoin’s appearance on the long-established US-based futures exchange such as CME and Cboe that is probably where the future lies. There was an initial 19% surge in Cboe bitcoin futures during their first day of trading – the first time a cryptocurrency had ever been traded on a regulated futures market. These contracts opened for bidding at $20,000 on December 10th and that first contract expired on Wednesday, 18th January. But on Tuesday 17th, bitcoin was sitting around $10,000, a fall of 50% – perhaps not the strongest start!
Despite this, most investors are hoping that bitcoin futures market have a quiet but steady start over time – that way they can look towards the next potential phase: bitcoin options…
The implication? Bitcoin has indeed been tamed but its future perhaps lies in futures rather than as a currency. The cryptocoin has many advantages – but as a currency it’s flowing against the current.
David Jinks is head of Consumer Research at e-commerce fulfilment experts ParcelHero
The research for this article was carried out by Forbes fintech expert Roger Aitken
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