As Tesla jumps into the bitcoin market following fintech companies PayPal and Square, expectations that bitcoin will someday become a new currency are growing. However, there are many mountains to overcome before Bitcoin can become a medium (a means of payment) for the real economy like existing currencies.
Elon Musk, Tesla’s CEO, announced on the 8th (local time) that Tesla has invested $1.5 billion (about 1.7 trillion won) in Bitcoin and that it will add Bitcoin as a payment method for Tesla vehicles in the future. Bitcoin supporters were enthusiastic about CEO Musk’s surprise announcement, and Bitcoin hit an all-time high of $48,226 on the 9th.
However, it is pointed out that bitcoin is not enough to play the role of’an exchange medium’, which is one of the main functions of currency. The medium of exchange means that it is used as a means of payment in the transaction process.
The Wall Street Journal (WSJ) pointed out that “bitcoin’s transaction fees and volatility made it impossible to trade in bitcoin in everyday life,” and “this will not change even if Tesla accepts bitcoin as a currency.”
Bitcoin fees are a huge burden for those who want to pay small amounts. According to BitInfochart, the median bitcoin transaction fee is currently around $5.40. However, the average transaction fee is over $11, and it varies greatly depending on network traffic at the time of payment.
When there are many bitcoin transactions, the fees skyrocket. Average daily transaction fees over the past three months ranged from $2.18 to $17.20.
“Bitcoin isn’t attractive to users who want to buy a four-dollar cup of coffee at Starbucks,” WSJ pointed out. However, fees may not be an issue for purchasing expensive luxury items. This is because the fee burden is not large to buy expensive products over $80,000 like Tesla’s Model S.
Another hurdle for Bitcoin is volatility. Although Bitcoin has nearly quadrupled since September last year, it is still fluctuating in volatility. It is possible to soar and plunge by 20% in just one day, and prices may fall for no reason.
In fact, some retailers have jumped into bitcoin payments and have suffered significant losses due to volatility.
Christopher Barsha, a car dealer in Georgia, USA, has been accepting bitcoin payments since 2015. He told Reuters, “It takes a few minutes to monetize Bitcoin on the payment platform, and price fluctuations can lead to losses of $300-400 per transaction,” he told Reuters. Reuters warned that “Bitcoin is dangerous for unfamiliar dealers because there are no Bitcoin-related banks or financial intermediaries.”
However, it is positive that the US has recently shown a move to incorporate virtual currency into institutional finance.
The US Currency Supervisory Service (OCC) allowed banks and financial institutions to use public blockchains and stable coins as payment methods on the 5th of last month.
With this decision, most US banks will be able to issue and pay stable coins that are linked with dollars. Experts predict that Tesla will also reduce the risk of volatility through’third party payments’.
Bitcoin also has a huge tax burden. The U.S. Internal Revenue Service classifies Bitcoin as a property, not a currency. Accordingly, Bitcoin owners are required to pay capital gains tax on transactions.
WSJ predicted, “Despite the’bulk’ surrounding Tesla’s announcement, it is unlikely that it will shake the bitcoin market in terms of transactions.”
According to WSJ, cryptocurrency payments at companies that accept Bitcoin payments account for only about 5% of total sales. WSJ said, “If this is applied to Tesla, only 25,000 vehicles were paid through bitcoin out of 500,000 units sold last year,” he said. “On the other hand, there are hundreds of thousands of transactions between bitcoin owners a day.”
JPMorgan Chase also predicted that other conglomerates would not follow Tesla to invest in bitcoin. The corporate financial portfolio is filled with bank deposits, money market funds (MMF), short-term bonds, etc., and the annual price change rate is around 1%, because the price change rate increases significantly when bitcoin is added.
JPMorgan Chase explained that if a company fills 1% of its portfolio with bitcoin, the price change rate of the entire portfolio can increase to 8% due to Bitcoin’s annual price change (80%).
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