Bitcoin has a problem. Almost nobody uses it
Tuesday, June 4, 2019 IST
Is the bitcoin bubble about to burst?
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Bitcoin has a lingering problem that few people are talking about. Hardly anyone is using 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 first four months of 2019, little changed over the boom and bust cycles of the prior two years.
Hoarding and holding
Even though marque companies such as AT&T Inc. 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’s become the main 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 rather than spending.
The surge of cryptocurrency
Bitcoin has more than doubled since January to almost $9,000. The original cryptocurrency surged 1,400% to almost $20,000 in 2017, before tumbling more than 70% last year. "We are still tracking a little up from last year," said Sonny Singh, chief commercial officer at BitPay. "The consumers in America generally spend more when the price of Bitcoin goes up. They've gone the double, they want to sell some."
(ATM at the headquarters of Swiss Falcon Private Bank in Zurich)
The highs and the lows
Overall merchant activity is still down from its peak in late 2017, when merchant services accounted for 1.5% of total Bitcoin activity during the peak of the crypto bubble. Use in merchant locations dropped to 0.9% last year, when the price of Bitcoin plunged before starting to recover in 2019, according to Chainalysis.
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Trouble in the long run?
Chainalysis found, that 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. 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 -- an asset that holds value at times of economic uncertainty, as Bitcoin is uncorrelated to stocks or bonds. That may be wishful thinking, though.
Business plans
A startup called Flexa said it would let people pay using certain cryptocurrencies at merchants like Nordstrom and Whole Foods Market. 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 don't think Bitcoin itself will ever be 'money,"' Jeff Dorman, chief investment officer at Los Angeles-based Arca, said in an email.
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