According to Chainalysis’s research, only 1.3% of bitcoin transactions came from merchants and the remaining bitcoin volume is mostly utilized in speculation. In simple words, this means that bitcoin is not achieving a substantial status or rank because the majority views bitcoin as more of an investment option rather as a mode of payment.
Unfortunately, the recent findings of Chainalysis reveal that bitcoin has achieved almost no success in becoming a widely known and acceptable mode of payment.
Although the popularity of bitcoin has surged along with its price, the success of bitcoin was never dependent on its popularity. The vision of the bitcoin creator, Satoshi Nakamoto, was to offer the general public something that was not controlled or manipulated by authorities and financial institutions. Therefore, by dominating the fiat in this way, bitcoin was expected to substitute fiat and become a global, reliable payment system.
Although there’s an increase in participation from institutions and big actors, bitcoin is nowhere near to its primary goal. In this regard, senior economist at Chainalysis Kim Grauer also confirmed that bitcoin has been quite under performing. He said:
Bitcoin economic activity continues to be dominated by exchange trading. This suggests Bitcoin’s top use case remains speculative, and the mainstream use of Bitcoin for everyday purchases is not yet a reality.
It was revealed by Chainalysis that about 89.7% of bitcoin transactions taking place in 2019 were related to exchanges. Bitcoin has instigated the formation of a group known as ‘hodlers’ who support the use of bitcoin but instead of spending it, accumulate it in order to maximize the returns by selling it when the price surges. Sonny Singh, chief commercial officer at BitPay, affirmed this point of view by stating:
We are still tracking a little up from last year. The consumers in America generally spend more when the price of Bitcoin goes up. They’ve gone the double, they want to sell some.
Chainalysis explained that even the joining of giants such as AT&T couldn’t benefit bitcoin in fulfilling its purpose. Revealing the operations of BitPay which was recently picked as the service provider for AT&T, it was revealed that whenever a customer pays bitcoin to a business, BitPay accepts the payment on the behalf of the company. Later, BitPay offers the businesses to take bitcoin or fiat currency or a split.
As the volatility continues to be problematic, companies opt for fiat currency option even though BitPay charges 1% fee for converting bitcoin to fiat. In this way, bitcoin transactions of millions of dollars worth go wasteful for bitcoin. The preference of companies to get fiat shows that bitcoin is not considered as a credible means of payment, at least not more than fiat.
Although it might appear as surprising, the reality of bitcoin revealed by the Chainalysis is not hard to comprehend. Bitcoin volatility is something that might be applauded by investors who are willing to take risks to make profits on their investments but for companies seeking to adopt bitcoin as a payment mode, volatility is very undesirable. Let’s say that a company bills a client about $10 million and bitcoin is priced at $10,000 so the client chooses to pay 1,000 bitcoin to clear his bill.
After accepting payment, due to the volatile market, let’s assume that bitcoin losses its value and falls to $9,000. Now, if the company evaluates its balance, clearly it has lost about $ 1 million as now the 1,000 bitcoins are of $9 million worth rather than original $10 million. This scenario explains why volatility thwarts the mass adoption of bitcoin to great extents.
While volatility makes bitcoin non-ideal among merchants, the ideology of bitcoin does possess features and traits that can never ever be matched by fiat. Bitcoin’s signature trait, a truly decentralized digital currency, makes it uncontrollable, unlike bank regulated fiat.
The price of bitcoin is purely dependent on the fundamentals of supply and demand. Moreover, bitcoin has a fixed supply which means that only 21 million bitcoins will be created. Quite different to fiat which can be printed as much as wished, bitcoin’s limited supply ensures that it is protected from the likes of inflation.
In contrast, stats show that since the Berlin Wall fell in 1989, the U.S. dollar inflation averaged about 3.22% which means that prices have doubled after every 20 years. In other words, the U.S. dollar loses half of its value after every two decades. Imagine saving $1 million now for your retirement and finding out after 20 years that its worth is almost to today’s $500,000.
It’s true that bitcoin could not achieve yet what it must to portray itself as a reliable payment option among merchants. However, this shouldn’t be confused with the capability of the world’s first true decentralized cryptocurrency that enables peer to peer transactions by eliminating the need of any third party. With that said that, it will be of interest to see how and what people decide in the long run when they choose between the bitcoin and fiat.