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Author Topic: Merchants that accept Bitcoin and settle in USD are driving the price down  (Read 3843 times)
Patel
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January 10, 2014, 01:16:46 AM
Last edit: January 10, 2014, 01:43:44 AM by Patel
 #1

Theres alot of people encouraging new companies to use Bitpay or Coinbase as merchant solutions, just so they can accept the currency and they can take no risk. The problem with this is that it drives the price down.

Users who pay with bitcoin, have had that bitcoin, meaning they didn't just buy it to spend. Only a few are buying bitcoin just to immediately spend it.

For the people who already have bitcoin, when they spend it at these merchants who are using Bitpay or Coinbase, and settle in USD, they are just driving the price down.

We need to encourage getting merchants on board, that will actually hold BTC instead of just using it as a gateway.

For example: Dealerships - Some dude buys a 218btc lambo, BitPay will take it, and of course they will sell the 218 on the market. Essentially, this is just somebody dumping 218 coins on the market.

Amazon.com - We want them to accept BTC so bad, but if they did accept BTC, there would be such a huge number of people who would use Bitcoin to pay just in 1 day, Maybe thousands of btc in one day. Imagine when Amazon's bitcoin processor dumps all those coins so Amazon can settle in USD. It will trigger panic.

Overstock.com - They accept Bitcoin, they probably did so many transactions today, but all of those coins were dumped on the market. Thus driving the price down. Imagine how many bitcoins they made today, but they didn't hold onto any of them, instead they just dumped all those coins. Anyone who paid in Bitcoin on Overstock today, pretty much just helped lower the price.

Getting merchants on board is good, but we need to get merchants who will accept bitcoin, and hold bitcoin, or spend it somewhere else. This is what will truly help the Bitcoin economy.


This is why its better to support Bitcoin marketplaces like Coingig (rip Bitmit) because they actually circulate the coins rather than dumping them.

PS: I am not an economics pro or anything, but it just came to my mind and wanted to share it here.
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pontiacg5
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January 10, 2014, 01:21:03 AM
 #2

It comes in small steps. Some would say the extra volume is better for stability in the price. Seeing as how that is btc's biggest complaint by merchants, it would seem that reducing the volatility might encourage them to actually hold the coins. At that point, maybe they go up in value within reason. If in the meantime it means we find the real market price (with volume) is less, than so be it. It would be a trade I would gladly take, if it meant much higher trade volume in the long run.

Nobody is going to accept bitcoins then not sell them to realise profits, it's just not financially possible at this point.


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January 10, 2014, 01:22:36 AM
 #3

Not fully disagreeing, but a couple things to keep in mind:
1) They would've otherwise been purchased in USD, possibly requiring BTC to be changed into USD through more cumbersome beasts. (I would've done this for my relatively large Overstock purchase a couple hours ago)
2) We can pretty safely assume the payment processors are keeping at least some of their fees as BTC.

Fiat<->BTC bridge services are non-ideal, but I wouldn't say they're necessarily hurting the price.
Patel
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January 10, 2014, 01:34:58 AM
 #4

Added the Amazon bit into the first post
Entropy-uc
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January 10, 2014, 01:39:07 AM
 #5

Bitcoin needs to be useful as a medium of exchange in order to be adopted as a store of value.

As a store of value, it is mind boggling how valuable bitcoin could be.

But if you can't spend it people aren't going to stash money away with it.

Short term it might slow down the appreciation against fiat, but that's not a bad thing if you believe in Bitcoin long term.  And if you're not a long term believer, all you are saying is "Everybody hold so I can dump mine at a crazy high price!"
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January 10, 2014, 02:01:07 AM
 #6

Overstock.com - They accept Bitcoin, they probably did so many transactions today, but all of those coins were dumped on the market. Thus driving the price down. Imagine how many bitcoins they made today, but they didn't hold onto any of them, instead they just dumped all those coins. Anyone who paid in Bitcoin on Overstock today, pretty much just helped lower the price.

reddit is like




but anyway maybe these giants selling huge chunks of coins into the market will cause a few dips here and there (opportunities to buy?), but i think the price will adjust to these high volumes that will be going on daily.. and if these merchants spread awareness and bring more money into bitcoin the price will increase naturally


PS: I am not an economics pro or anything, but it just came to my mind and wanted to share it here.




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BittBurger
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January 10, 2014, 02:03:15 AM
 #7

The problem with this is that it drives the price down.

using Bitpay or Coinbase, and settle in USD, they are just driving the price down.


You realize that you completely failed to explain why you think they're driving the price down, right?

You state your theory but then have nothing to back it up.  Why is it necessary to back it up?  Because many would disagree with you on this.

Many feel that adoption (which is the other side of this coin you present) balances out, if not increases price of bitcoin.

So why do you feel it outweighs and in fact nullifies any benefit of increased adoption?

-BB-

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Patel
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January 10, 2014, 02:04:32 AM
 #8

The problem with this is that it drives the price down.

using Bitpay or Coinbase, and settle in USD, they are just driving the price down.


You realize that you completely failed to explain why they're driving the price down, right?

-BB-

Because they sell the bitcoin to cover the cost to pay the merchant in USD
BittBurger
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January 10, 2014, 02:05:48 AM
 #9

I edited my post.

Check it again.   Please reply to the 2nd half if possible.

Somehow you have to provide evidence that increased adoption, the benefits of increased awareness, the benefits of increased popularity, and all the benefits of a big site like Overstock accepting bitcoin, still somehow is completely nullified by the fact that they cash out to USD.  I don't think its possible to make that claim.

And the price of Bitcoin sure did not go down today, on the first day of Overstock accepting Bitcoin.

Bitcoin's true purpose defined in Satoshi's message on the Genesis Block:
"The Times 03/Jan/2009 Chancellor on brink of second bailout for banks"
View it on the Blockchain | Genesis Block Newspaper Copies
Patel
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January 10, 2014, 02:08:46 AM
 #10

The problem with this is that it drives the price down.

using Bitpay or Coinbase, and settle in USD, they are just driving the price down.


You realize that you completely failed to explain why you think they're driving the price down, right?

You state your theory but then have nothing to back it up.  Why is it necessary to back it up?  Because many would disagree with you on this.

Many feel that adoption (which is the other side of this coin you present) balances out, if not increases price of bitcoin.

So why do you feel it outweighs and in fact nullifies any benefit of increased adoption?

-BB-

People can disagree and thats fine. Most of the people who spend the Bitcoins on these sites, already had them. Meaning they aren't buying at market price just to spend them. Meaning, fiat is not coming in, rather Bitcoin is leaving into fiat.

So when new companies get 1,000 btc worth of sales, their payment processors are going to dump that 1k btc to settle the merchant in USD. Thus driving the price down.

Its helps bitcoin investors cash out easily, rather than bringing new money into bitcoin.
Entropy-uc
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January 10, 2014, 02:25:05 AM
 #11

The problem with this is that it drives the price down.

using Bitpay or Coinbase, and settle in USD, they are just driving the price down.


You realize that you completely failed to explain why you think they're driving the price down, right?

You state your theory but then have nothing to back it up.  Why is it necessary to back it up?  Because many would disagree with you on this.

Many feel that adoption (which is the other side of this coin you present) balances out, if not increases price of bitcoin.

So why do you feel it outweighs and in fact nullifies any benefit of increased adoption?

-BB-

People can disagree and thats fine. Most of the people who spend the Bitcoins on these sites, already had them. Meaning they aren't buying at market price just to spend them. Meaning, fiat is not coming in, rather Bitcoin is leaving into fiat.

So when new companies get 1,000 btc worth of sales, their payment processors are going to dump that 1k btc to settle the merchant in USD. Thus driving the price down.

Its helps bitcoin investors cash out easily, rather than bringing new money into bitcoin.

You do seem to be saying "Everybody hold so I can dump mine at a ridiculous price"

But just for the sake of moving the conversation forward: What makes you so confident that Bitpay and Coinbase are dumping coins immediately?  They both allow merchants to keep coins instead of dollars.

Further to this what if I were to tell you I have evidence that coins sold to Bitpay actually are sold to SecondMarket?
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January 10, 2014, 02:33:02 AM
 #12

I just spent roughly $125 worth of bitcoin on Overstock, then immediately ordered $125 worth of bitcoin from Coinbase to replace it.  So in my case, it was a wash, but OP does in fact have a point. 

If a whale dumps bitcoin on the market, the price goes down.  If a whale buys a lambo with Bitcoin, and the dealer immediately sells the bitcoin on the market, same difference.

I guess it is a double edged sword.  If nobody uses bitcoin as a currency, the price goes down.  Sometimes when the bitcoin is used as a currency *if the seller dumps theirs*, the price goes down. 

But then again, over time more and more people will be buying bitcoin just to quickly use it as a currency, buying to sell, making it a wash.

Ahh, my head hurts.

In the long run however, bitcoin absolutely depends on people using it.  If people don't use it, and all the merchants say "Well this was a waste of time and effort" and change their minds, bitcoin could be dead.



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January 10, 2014, 02:45:46 AM
 #13

people spending bitcoins, merchants selling BTC is good for economy - this is very healthy for Bitcoin - so far we had only complains that the market is only driven by speculation, so merchants exchanging BTC for USD is a natural amortization, or to be precise, a stabilization of over speculation.   Additionally, it's been mentioned somewhere that overstock has 5 million daily users, even if 1% or less get to checkout and payment options - that many new people will get to see a bitcoin option - some of them will be curious to learn about Bitcoin, which is much better than your regular hype or anti-bitcoin fuzz in news media sources and overall will drive value of bitcoin up long term.

although we all would love to see bitcoin value skyrocket, i'm glad this naturally occurring effect of balancing price is happening and if you look at it on a global scale, merchants for a foreseeable future will be converting BTC to fiat, because of their 'day to day' expenses, most of which need to be paid in fiat, regardless of volatility risks.   and yet, don't underestimate bitcoin, just have a little patience Wink
Patel
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January 10, 2014, 03:04:25 AM
Last edit: January 10, 2014, 03:24:34 AM by Patel
 #14

Somehow you have to provide evidence that increased adoption, the benefits of increased awareness, the benefits of increased popularity, and all the benefits of a big site like Overstock accepting bitcoin, still somehow is completely nullified by the fact that they cash out to USD.  I don't think its possible to make that claim.

And the price of Bitcoin sure did not go down today, on the first day of Overstock accepting Bitcoin.

Even if we don't pay with bitcoin on overstock, bitcoin still get the all the benefits you mentioned at the beginning of your post.

People are free to use bitcoin however they want to, I am not stopping anyone, but it makes more sense to use a credit card on Overstock knowing they are going to dump the coins to settle in fiat anyways.

If I know a merchant is holding onto bitcoin, and truly accepting it as a currency, then spending my Bitcoin there makes more sense. At least I know it won't be immediately sold for fiat driving the price down. This is my point.


You do seem to be saying "Everybody hold so I can dump mine at a ridiculous price"

I didn't say anything about dumping my coins. Sounds like your trying to put words in my mouth.
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January 10, 2014, 03:35:46 AM
 #15

How about you open your own cryptocurrency where everyone is a sore investor that speculates for all eternity, you don't even need a blockchain.  Grin

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January 10, 2014, 03:59:45 AM
 #16

This gets my vote for dumbest conclusion drawn.

I'm grumpy!!
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January 10, 2014, 04:10:22 AM
 #17

Fully agree with the OP here. I made the same point a few weeks ago, if the companies accepting BTC then use this BTC to pay their overheads this will be a step in the right direction. What they're doing now could cause BTC to collapse.

Let's say 1000 BTC was spent everyday all of which was being dumped back on to the market there will be less buyers for BTC as it becomes a pointless exercise. Lots of people using BTC to buy going to one company who then sell the BTC for USD, where are the new buyers for this BTC coming from?
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January 10, 2014, 04:21:58 AM
 #18

Quote
Merchants that accept Bitcoin and settle in USD are driving the price down

I do not agree with this statement at all, when a big merchant starts to accept bitcoin payments, it opens up a new market for bitcoin, BTC becomes a stronger currency because it becomes more relevant as a currency, this should increase demand for bitcoin= more people gonna buy BTC with FIAT.

Every time a big merchant accepts BTC, BTC becomes a stronger currency in the long run, that is how BTC got strong ever since the first real life good, a pizza, was bought for bitcoin.

When the merchant immediately dumps all the bitcoin he made from the sales that can only have a short term negative effect on the price of BTC, in the long run it is positive. because it will lead to more people holding BTC.

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January 10, 2014, 04:26:13 AM
 #19

Perhaps the negatives of the argument will only be short term but bear in mind at the moment people who buy with BTC with companies such as Overstock are in essence exchanging their BTC for USD. This can't be said in any other way.
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January 10, 2014, 04:34:09 AM
 #20

The op only mentions half the argument. He bypasses the fact that the consumer will have to buy the bitcoin which will cause the inverse effect(price going up). Additionally, the more people that use bitcoin, the more demand there will be which will also cause Btc to go up. Additionally, we must remember that Btc has a limited supply; 21mil. Looking at the big picture, I propose that the more people that actually start using Btc to make purchases, the higher the price will go due to the element of there being a limited supply of Btc.
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