“Do you accept bitcoin?” Is this the question merchants can expect to be hearing soon? 

Recent news around bitcoin – specifically its rise above $10,000 in value - has once again begged the question – what is bitcoin? This time the question doesn’t revolve around the technology basics of bitcoin, of which numerous articles have been written (see Javelin’s Bitcoin and the Global Remittance Market: Using Cryptocurrencies for Remittances), but rather what purpose bitcoin serves in the financial services market, if any. As a cryptocurrency, it stands to reason that bitcoin should be a viable payment tool for goods and services. However, the high value and extreme volatility of bitcoin has made that nearly impossible for both merchants and consumers.

Opinions on the efficacy of bitcoin are varied – from JPMorgan CEO Jamie Dimon calling it a ‘a fraud’  to early Facebook investors Cameron and Tyler Winkelvoss becoming the first bitcoin billionaires thanks to their early investment in 2013.  No matter the opinion, the recent price surge has captured the attention of the general public in a way not seen previously. 

Bitcoin’s Value Has Risen Astronomically Over the Past Year
Bitcoin to U.S. Dollar Value, December 3, 2016 – December 3, 2017

 Source: Coindesk

But if not currently a payment mechanism, is it a viable investment tool that, once stabilized, may evolve into a legitimate form of payment? Should financial institutions and merchants start preparing for that eventuality? The short answer: no. 

While it is certainly being used as an investment mechanism, it appears largely driven by speculation and not by underlying market factors. The fact remains that bitcoin has not yet been proven to be an investment, such as gold or oil, since we don’t fully know how bitcoin reacts in a changing economic environment. In other words, it doesn’t quite fit the profile of a traditional investment vehicle. Until that happens, its potential as a regularly accepted payment method – either online or off – is extremely limited to a very small number of use cases. 

Too many factors need to be clarified for bitcoin to be used for anything other than its current use cases and any exploratory investments would be premature. With so much uncertainty ahead, the best approach for those financial ecosystem members who may be wondering if bitcoin will be a payment method is to simply wait and see.


[1] https://www.bloomberg.com/news/articles/2017-09-12/jpmorgan-s-ceo-says-he-d-fire-traders-who-bet-on-fraud-bitcoin
[2] http://www.independent.co.uk/news/business/news/winklevoss-twins-bitcoin-billions-facebook-mark-zucherberg-lawsuit-a8090921.html


About Rachel Huber

Rachel is an analyst in Javelin’s payments practice. Her focus is on the developing payments industry, with specific interests in e-commerce, person-to-person payments, digital wallets, and generational differences in payment preferences. 

Before joining Javelin, Rachel was an analyst in Fiserv’s global sales organization. She focused on competitive intelligence and thought leadership on emerging technologies in support of the card services division. Rachel began her career in investment management as a sell-side analyst before moving into mutual fund compliance at US Bank.

Rachel holds a BBA in finance and marketing and an MBA with specialization in investment management, both from the University of Wisconsin-Milwaukee’s Lubar School of Business.

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