What does Bitpay do with the Bitcoins they receive?

[rolanberry]

I'm pretty new to Bitcoin and such, and just trying to understand Bitpay a bit more.

So a Merchant makes an account with Bitpay so that they can accept payments from consumers who use bitcoins.  When the consumer pays bitcoins to the Merchant's Bitpay account, Bitpay immediately exchanges the bitcoins for USD (or another currency) and deposits the USD into the merchant's bitpay account; this eliminates the risk of volatility associated with Bitcoin for the merchants.

Where does Bitpay get their USD?  Do they immediately sell the bitcoins that they receive during the transaction so that they have USD on hand for future transactions?  If this was the case, they would have to deposit slightly less than the USD market value of bitcoins into the merchant's account (or they charge a fee), so that when they sold the bitcoins for market value, they wouldn't lose money.

Or does Bitpay hold onto the bitcoins and uses money it receives from Investments to cover USD payments to their merchants?

[Gator-hex]

I would assume they get sold on an exchange as that is what determines their value.

Ain't free markets grand? No central bank plutocrat to decide what your money is worth today!

I could have sworn that's what we used to call Communism in the 80's!  

[hieroglyph]

I concur with the explanation given by Gator-hex.  The middle man approach seems to be the service offered by Bitpay.  Having never used the company myself I can't say for sure so I'm just giving my 2 cents.

[niothor]

There were rumors of them using Gox in the past to exchange coins. Not confirmed till now for what I know.