Bitcoin Forum

Hello,

Could anybody elaborate further on Bitpay's business model?

From what I see they charge 2.70% per merchant transaction to process and convert "swiped" Bitcoins into USD. They have stated they have 1000 registered merchants. How can they protect merchants risk exposure from recent Bitcoin BTCUSD exchange rate extreme fluctuations? Moreover, the most liquid exchange is MTGox and at the moment its difficult to transact USD 20K at a time without lowering the BTCUSD exchange rate significantly, they would have to be dividing transactions i.e. selling at market for example in a 24 hour period, 14 USD worth of Bitcoins per minute in order not to disturb the rate.

Thank you for your comments.

What if they are simply bullish on bitcoin and are, at least most of the time, buying the coins themselves?

Its perfectly feasible. Next flash crash / heist we'll know the truth.

I have no insight any better than anyone else not affiliated with BitPay, but the exchange rate used for determining the BTC amount on the invoice is only good for 15 minutes.  BitPay absorbs the volatility during that 15 minutes, not the merchant.

In those 15 minutes of exchange rate volatility, when the rate moves in Bit-Pay's favor they do refund that to the customer (or did at one time, I can't remember if their new checkout does that).  Their fees are substantive enough to accommodate the 15 minutes of risk to volatility.

They then likely are automatically trading either with every sale or in batches occurring not much thereafter.  They likely have sufficient reserves at their exchange(s) so that when the coins arrive from the proceeds of the sale that a trade can occur immediately without any delay occurring from trying to first forward the coins to the exchange.

Because BitPay doesn't have merchants who trade high value liquid assets (e.g., financial instruments, like contracts for purchase of gold), then they really aren't at much risk of someone gaming Bit-Pay intending to place an order that locks in the exchange rate, followed by their trades that move the market, followed by making the payment just under the 15 minute expiration.

Also, BitPay sells coins in bulk (i.e., orders of $10K USD and up), so they may have buyers waiting where each incoming flow of coins to BitPay is already spoken for and occurs at either a negotiated rate or terms that link the rate to the invoiced rate thus removing any risk of volatility affecting BitPay whatsoever.

This I find really surprising. Are these merchants pre-established businesses that are adding bitcoin as an extra payment option, or are they startups with bitcoin/bitpay as the only payment option?

Wouldn't it be wiser for them to run their own private exchange for their clients and only perform the USD <-> BTC conversion at the point of the merchant redeeming the coins.
They can display or set a value for the coins being held my the merchant based off the MTGox daily price without actually converting or selling the coins on the exchange.
Income from selling coins in bulk would offset external exchange prices.

They only need to have a risk model for ensuring they have enough liquidity to handle merchant payouts.

They do that.  From another thread: