"More Bitcoin Acceptance (by big e-commerce sites) is the chief reason for the current fall. I even pointed this out in a comment on another blog over 2 weeks ago. Big online merchants aren't keeping the market balanced by using their BTC to purchase inventory, goods, and services. Instead, they're simply dumping their daily intake on the exchanges.
But it gets worse! If a large merchant has sold their goods online that day for, say, 10% under current exchange rates, then they can dump that day's intake of BTC for 9.5% under market and still make dollar profit, but pushing the BTC market down even more in the process."
This!
I logged in to comment on this.
If you think about it, it makes perfect sense for a retailer to have figured this out.
1.) Offer incentives to purchase using bitcoin which brings in customers from a niche market paradigm that is untapped. (Think about retailers who target shoppers who would prefer to "buy American". Instead retailers would target shoppers who would prefer to "buy bitcoin".)
2.) Thanks to the ease of converting in and out of bitcoin/fiat, retailers have little to no risk for cash flow or modifying their back channels. This allows retailers to focus on pricing (which is what retailers do best) to find profit. Pricing based on BTC/fiat exchange rates allows the retailer to offer huge nominal discounts (pay 10% less nominal when using BTC) but actually realize gains on the exchange. This is essentially the retailer playing the exchange rate market. Since retailers have product that is directly exchanged for bitcoin, by offering product for nominal BTC discount, they are shorting that market. This is perfect for the retailer in the current merchant paradigm where middle men need to sell to convert the fiat they promised to the retailer. So retailers have a built in short cover
3.) This also an excellent play for retailers because lowering the exchange rate gives a perception of "cheapness" to the average consumer. The average consumer hasn't really figured out that that in terms of utility, there won't be a difference between $100 BTC and $1000 BTC. Both of those "coins" can do exactly the same thing. However the perception is that a $100 BTC is "cheaper" and would encourage that consumer to "invest". So driving down the nominal exchange rate is definitely in the best interest of a retailer looking for more consumers to fill that niche market paradigm that the savvy retailer has set up to accept and capitalize on.
My only question is, how does this hold up when the reverse is true? Will the retailer still be able to offer sharp nominal BTC discounts? In fact I think it works out even better for the retailer. In market where the exchange rate is increasing, the retailer would simply hold on to the balance of BTC as a reserve to win even stronger exchange profit later on or perhaps even offer sharper discounts in the next down swing.
It's an extremely interesting financial concept that I will be following closely.
More discounts when exchange rate is lower, and more reserves when exchange rate is higher. It's almost pie in the sky stuff for retailers and consumers. I just have to also wonder when the day traders and middlemen will catch on and try to tap that seemingly risk free profit from the retailer and perceived savings from the consumer. What will THAT do to the ecosystem?
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