Another Link about Bitcoin, and Why Large Companies are Unlikely to Use It

Some nice economic concepts about what makes Bitcoin money: http://economistsview.typepad.com/economistsview/2013/12/time-for-a-little-bitcoin-discussion.html

Currently, it is not really used by any major retailers, though TechCrunch reported (via http://techcrunch.com/2013/12/21/overstock-com-reportedly-plans-to-accept-bitcoin-in-2014) that Overstock.com plans to offer it as a payment option in 2014. The same TechCrunch article also mentioned other companies that currently accept Bitcoin: OkCupid, Namecheap, and Humble Bundle.

Things will be fine as long as Bitcoin is a novelty and used little. But should it gain traction, a retailer will have to either convert the large amount of Bitcoin it receives to currency or keeps it in reserve. For the former, unless Bitcoin is used widely beyond the retailer itself, the transactions might have a large effect on the exchange rate (i.e., Bitcoin to US dollar for example).  For the latter, a quarterly financial statement where a decent portion of asset can drop more than 60% in a month will add unwanted volatility to the company. At this point, there are no derivatives to hedge this risk.

Does 60% seem large? As mentioned in the December 20th Financial Times article at http://www.ft.com/intl/cms/s/0/d5f2f096-6907-11e3-996a-00144feabdc0.html: "The price of a single Bitcoin has yoyo-ed between $450 and $1,280 in December alone."