Who’s using Bitcoin to buy and sell goods and services?
A lot fewer people than you probably would have guessed. After peaking at $411 million in September, the amount of money the largest 17 crypto merchant-processing services received in the best-known cryptocurrency has been on a steady decline, hitting a recent low of $60 million in May, according to research that startup Chainalysis Inc. conducted for Bloomberg News.
While the amount merchant services such as BitPay, Coinify and GoCoin received increased slightly in June to $69 million, it was still a far cry from the $270 million received a year ago, Chainalysis found.
Bitcoin advocates have long suggested the virtual money would one day replace fiat currencies as a means of doing business, but after a rise in use last fall, the cryptocurrency has lost what little appeal it had as a way to buy goods or services.
“It’s not actually usable," Nicholas Weaver, a senior researcher at the International Computer Science Institute, said in an email. Often, he said, "the net cost of a Bitcoin transaction is far more than a credit card transaction." And Bitcoin-based transactions can’t be reversed, an issue when a merchant or a consumer comes up against fraud.
The decline in use for payments coincided with the spike in speculative investing that drove the price of the biggest virtual currency to a record high of almost $20,000 in December. While Bitcoin’s price has steadied somewhat recently after crashing more than 50 percent, consumers still appear to be reluctant to use the digital coins for transactions.
“When the price is going up so rapidly last year, in one day you could lose $1,000 if you spent it,” Kim Grauer, senior economist at Chainalysis, said in a phone interview. What’s more, high transaction fees have made paying for small-ticket items like coffee with Bitcoin impractical, she said.
In January, payment service Stripe Inc. stopped supporting Bitcoin as usage declined and price swings intensified. A number of companies such as travel services provider Expedia stopped accepting the cryptocurrency as well.
That’s a troubling sign for some fundamental investors, who maintain the belief that the cryptocurrency has to be in use in the real world versus just be a speculative instrument to have long-term value.
"Most people who are not Bitcoin core maximalists argue that yes, you need people to use these things as means of payment to become money," Kyle Samani, managing partner at Austin, Texas-based hedge fund Multicoin Capital, said in a email. "Or as my co-founder Tushar likes to say, don’t think of money as a noun, but rather as an adjective. The more something is used as money, the more ‘moneyness’ it has."