FLASH: Bitcoin (BTC) has a major problem that few are talking about due the renewed exuberance of the recent rally.
That problem is that hardly anyone uses the world’s largest cryptocurrency for anything beyond speculation. Data from New York-based blockchain researcher Chainalysis Inc. show that only 1.3% of economic transactions came from merchants in the 1st 4 months of Y 2019, little changed over the boom and bust cycles of the prior 2 years.
Even though marque companies such as AT&T Inc. (NYSE:T) now let customers pay with cryptocurrencies, the problem is that few speculators want to use the digital coins to pay for wireless services when the digital asset’s price might surge another 50% in a matter of weeks.
That has become the Key dilemma with the cryptocurrency: Bitcoin needs the hype to attract mass appeal to be considered a viable electronic alternative to money but it has developed a culture of “hodlers” who advocate accumulation and not spending.
‘Bitcoin economic activity continues to be dominated by exchange trading,’ the senior economist at Chainalysis, said in an e-Mail. ‘This suggests Bitcoin’s Top use case remains speculative, and the mainstream use of Bitcoin for everyday purchases is not yet a reality.’
Chainalysis tracks service providers including BitPay Inc. which provide payment processing services to merchants. BitPay, which recently was picked as a payment services provider for AT&T, processed $1-B in both Y’s 2017 and 2018, BitPay said in an e-Mail.
Bitcoin has more than 2X’d since January to as high of more than $9,000 Thursday. The original cryptocurrency surged 1,400% to almost $20,000 in Y 2017, before tumbling more than 70% last year. It dropped about 3% to around $8,200 Friday.
Currently, Bitcoin is trading at: 8,586.4902+30.63 (+0.358%), the market is open.
While BitPay’s transaction volume may seem massive, Visa (NYSE:V) processed almost 500,000 transactions every day last year, and handled $11.2-T in payment and cash volume in Y 2018.
Transactions related to exchanges still accounted for 89.7% of all Bitcoin activity between January and April of this year, down only slightly from 91.9% for all of last year, Chainalysis found.
The trend could be a troublesome sign for Bitcoin’s longevity.
Its anonymous creator, Satoshi Nakamoto, envisioned Bitcoin’s use in everyday transactions, from buying coffee to paying for rental cars. More recently, investors have been emphasizing that Bitcoin has instead morphed into a digital version of gold, as Bitcoin is uncorrelated to stocks or bonds.
That may be wishful thinking, though, the store of value, aka digital gold hypothesis is unlikely to be the ultimate winner on a decade + timescale.
Dark net, or illegal, activity has increased, as have peer-to-peer Bitcoin transactions, Chainalysis found.
Efforts to ramp up merchant activity continue.
A startup called Flexa recently said it would let people pay using certain cryptocurrencies at merchants like Nordstrom Inc. and Whole Foods Market Inc. Flexa already allows people to spend Bitcoin, Ether, Bitcoin Cash and Gemini dollar at more than 30,000 locations in the US.
“Bitcoin is the leader today, and may continue to be the leader due to having the largest network effect and ‘brand,’ but I do not think Bitcoin itself will ever be ‘money,”’ the CIO at Los Angeles-based Arca, said in an e-Mail. ‘Bitcoin does not have to be money to be a success. A lot of great technologies end up being strategically important without living up to their initial road map.’
Have a terrific weekend