As much of a player Bitcoin truly is, we need to keep in mind that he is still a very young dude. In a recent blog, Bitcoin entrepreneur and
Gyft CEO Vinny Lingham considers if it may, in fact, be unadvantageous in the short term to heedlessly drive new merchant integration:
What’s now happening when new merchants start accepting Bitcoin is that it’s giving people who have existing coins the ability to use it as a currency and effectively “sell” their coins to the merchant. The processors such as Bitpay (which Gyft uses to sell gift cards) then in turn either sells these coins to private buyers (off book) or via exchanges (such as Bitstamp) to exchange for local currency for the merchants. This money is understandably used to continue to replenish inventory and operate their business, and more importantly, pay taxes to Uncle Sam.
Although many Bitcoiners are hoping for more large retailers like TigerDirect and Overstock to adopt Bitcoin, it may have a negative impact on the BTC price as these retailers will most likely convert 90% of their coins to cash — putting additional selling pressure on Bitcoin. This outcome may not be as desirable in the short term, but it will create a better long-term outlook for Bitcoin given the liquidity options. Again, if you asymmetrically add large retailers without driving consumer adoption at the same time, the demand supply curve will shift undesirably.
As the number of transactions via Bitcoin processors increase, it ultimately creates more sellers in the marketplace — which obviously creates downward pressure on the trading price. Now, I’m not saying that this is a bad thing in the long term, but the problem is that if you have asymmetric growth in new Bitcoin users and Bitcoin “acceptors”, it will create a lopsided marketplace which will suppress the price — which is exactly what is currently happening. We’re seeing the impact of this in the market right now, I believe.
Discuss