Digital Transactions Authoritative, insightful and timely information for payments professionals
Bitcoin’s return to volatility in recent days isn’t the only issue the digital currency confronts as it seeks to establish a toehold in the world of payments. As it turns out, its use in actual payment transactions is shrinking fast, according to numbers compiled by Chainalysis Inc., a New York City-based firm whose software measures cryptocurrency volume in merchant services.
After holding steady at or above the $6,000 level for more than a year, Bitcoin swooned at the middle of this month and was trading at mid-morning Tuesday at $3,684, according to Coindesk, an online news service that follows cryptocurrencies. Indeed, after peaking in December at a nosebleed height near $20,000, Bitcoin eventually settled early in September onto a track that saw little variation until recently.
The coin’s volatility can hurt merchant volume as both buyers and sellers must account for changes in value between the time a customer starts a transaction and when the transaction actually clears and settles. But Bitcoin’s merchant volume has been trending down all year, from $344.2 million in January to just $95.6 million in September, the latest month for which Chainalysis has figures. The company says it gathers its data from 17 companies that provide merchant services for Bitcoin and other digital currencies.
The drop in volume could stem from Bitcoin’s slide from its five-figure dollar value early this year as much as from any merchant aversion to accepting the cryptocurrency. But Kim Grauer, a senior economist at Chainalysis, cautions against drawing any firm conclusions. “It’s definitely a fuzzy topic,” Grauer tells Digital Transactions News. “We’re not positive what’s driving a lot of this activity.”
The merchant-acceptance market for Bitcoin is still in its infancy, leading Grauer to point to several factors that could underlie the decrease in merchant volume. “It’s hard to know if people are jaded, or in wait-and-see mode, or hodling,” she says. The term “hodling” stems from a misprint for “holding” that occurred on social media and refers to the decision to sit on Bitcoin as an asset rather than spend it.
Also, for a while it could be quite expensive to spend Bitcoin. The median network transaction fee to users has calmed down this year after reaching a peak in December at a lofty $31, according to Bitinfocharts.com. That development, along with a congested network and lengthy transaction times, led providers like Stripe to stop supporting Bitcoin. As of Monday, though, the fee stood at 28 cents and has held steady well below the $1 level most of the time since March.
All told, Grauer says, the story behind merchant-volume trends for Bitcoin “is a little more nuanced” than a simple conclusion that the digital currency is failing as a medium of exchange. “The infrastructure,” she says, “is being built. 2017 was a year of buzz. 2018 is a year of the building phase.”
