Bitcoin’s prices will be sunk by attrition
Bitcoin (BTC) is about to experience attrition. This means that some merchants who currently accept the cryptocurrency will change course, and stop taking payments in BTC.
Tens of thousands of merchants jumped on the “Bitwagon” last year, when BTC prices hit a peak of $1,147. Now some will reverse course, whether due to the volatility of Bitcoin prices, increased regulatory scrutiny, or even bankruptcy of their business.
The eventual attrition rate is important, but even more important is to compare it to the overall growth rate. The attrition can not be higher than the growth of new merchants, otherwise the digital currency will start dying on the vine.
While the number of merchants accepting BTC continues to grow, that growth rate is slowing down markedly, according to the digital currency tracking publication, CoinDesk. Given the timing of the peak in interest surrounding BTC (December, 2013), and how long it will take merchants who originally adopted the Cryptocurreny to reverse course, only now should you expect to see attrition begin.
It should be expected for anything and everything to have an attrition rate. McDonald’s will have customer attrition, as will satellite radio, boating, going to a gym, and iPhones. The important question becomes whether or not the growth rate is outpacing the number of customers being lost.
Bitcoin is now facing a slowing growth rate, and the question becomes will that muted growth still be enough to outpace the attrition which is only now beginning? The recent and significant drop-off in transaction volumes, combined with the precipitous fall in BTC prices, as cited by CoinDesk, will result in many merchants deciding to jump ship.
Bitcoin is the name brand poster-child for alternative payment methods, just as Kleenex represents tissue, Band-Aid means adhesive bandage, and Xerox means photocopy. As such, BTC commands a market share among digital currencies of over 90%. Regardless, competition from other brands (such as Darkcoin, Peercoin, Litecoin, and others) will have a major impact on the growth rate.
As with any industry, there is typically room for about three competing options. This will be no different with digital currencies than it is with any other business model, or product type.
However, the real competition for Bitcoin will not be other digital currencies: competition will come from conventional payment methods. The majority of people will not decide between Bitcoin, Namecoin, Darkcoin, and Pagecoin. Rather, they will choose between paying in BTC versus using cash, credit cards, debit cards, Apple Pay, PayPal, and wire transfers.
Most of the various digital coins will disappear in the coming months and years. Most will shut down their operations, while some will be absorbed through mergers or be acquired by larger cryptocurrencies (and then eventually shut down).
The risky, complicated, and volatile Bitcoin is slipping in terms of value, total usage, and growth (although the cryptocurrency still commands a $5 billion total valuation, based on the number of Bitcoin in existence multiplied by the digital coin’s price). This will result in some businesses eliminating their BTC payment option. It will mean attrition… and the eventual decrease in Bitcoin relevance.
Peter Leeds is the publisher of Peter Leeds Penny Stocks, one of the most popular financial publications in America, and which has sold over 35,000 subscriptions on six continents. He has also been covered extensively by major media outlets, from Manhattan to Moscow, including NBC, CBS, Fox, Business Excellence Magazine, Russia Today, and dozens of other television, radio, magazine, book, newspaper, and online outlets.
Leeds is the author of Penny Stocks for Dummies and Invest in Penny Stocks [John Wiley & Sons], was a contract writer for Forbes, and is a public speaker American Stock Exchange, World MoneyShow, mini-seminars]. Leeds also led the panel at the prestigious Arch Investment Conferences in Manhattan, and at the World MoneyShow.