salesIs a good deal accept payments in Bitcoins and Litecoins for services in my Startup? I’m expecting here some aspects like availability and utility value.
Which companies are accepting these currencies?
There are a number of factors that you should consider when deciding whether to accept payments in a currency like Bitcoin:
#Currency risk#
If one receives income in one currency but disburses payments in another, then one is exposed to currency risk: that is, the value of the received currency may move before it is exchanged.
Example
Alice sells goods online and decides to start accepting Bitcoins. She has a widget in inventory that was purchased on credit for $400. Knowing that ฿1 is currently worth circa $480, she agrees to sell that widget to Bob for ฿1. Before she is able to exchange the received Bitcoin, its value collapses to $300. Her expected profit of $80 has suddenly become a $100 loss!
Such risk always exists when dealing in multiple currencies. However, compared with major currencies, Bitcoin has been (and likely will continue to be, owing to the by-design exponentially decaying rate at which new coins can be mined) extremely volatile: thus unless you are willing to gamble on its value, you may wish to consider whether you really want to hold it.
This is especially true when one considers that any position you hold from sales is almost certainly leveraged (only the profit element is pure equity—the remainder is working capital, which is usually financed by credit) and therefore, like Alice above, you may lose money that you don’t have. This puts your business at risk.
#Liquidity risk#
Liquidity is related to currency risk insofar as liquidity affects the currency’s value—but they are not the same thing. There may be widespread agreement on the value of a Bitcoin, but if you have difficulty finding a buyer then you may be left with your capital tied up in a currency with which you’re unable to pay your bills. Again, this puts your business at risk.
To some degree, this is becoming less of an issue as the means of exchanging Bitcoins for other currencies become more numerous, more reliable and more stable. However, it’s worth remembering that some of the biggest exchanges have at times failed or closed and that a changing regulatory landscape may further limit your exit options: more on that below.
#Regulatory risk#
There continues to be high-level discussion within governments over how to regulate Bitcoin: indeed the legality of its use differs around the world. Such action could affect not only the currency’s value and its liquidity, but also your criminal liability for handling the currency.
Furthermore, you may find that your bankers will be concerned by your trade in Bitcoins and may withdraw their facilities from you (to avoid, for example, any suggestion of money laundering).
#Security risk#
There have been much-publicised thefts of Bitcoins from digital wallets, together with ongoing attacks on the protocol itself. You may wish to evaluate the risk to your business of a successful attack and consider how those risks can be mitigated.
#Reputational risk#
This is a double-edged sword. Within some market segments, there may be a positive reputational benefit from accepting Bitcoins; whereas in other market segments, your partners may be concerned by possible negative repuational implications.
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