One of the barriers to cryptocurrencies being a part of the average investor’s portfolio is you still can’t use them to pay at most major retailers. That includes online giants like Amazon.
To be certain, as a “currency” in the traditional sense, cryptocurrencies such as bitcoin are far more volatile compared to more stable currencies such as the U.S. dollar.
The annual inflation rate of the U.S. dollar, for example, has been below 2% for some time. So in terms of retail purchasing power, buyers and sellers both know a shirt that costs $10 today will cost $10 tomorrow… and probably not much more than $10 a year from now.
But with swings as extreme as 40-50% per year, a retailer needs to calculate, in real time, bitcoin’s retail purchasing power against the dollar to know what each digital token is worth at the time of a transaction. Retailers who hold bitcoin also risk those coins going down in value before they can convert them to dollars.
Of course, there is the argument that people could just hold all of their liquid assets in bitcoin and transact in bitcoin, without considering the equivalent U.S. dollar value. But the lack of universal acceptance right now makes that impractical.
That may be about to change. And perhaps soon.
It’s thanks to a commitment from payment giant Square to provide retailers with a bitcoin-capable payment system that would automatically convert bitcoin to dollars at the instant of the transaction. Square would immediately sell the bitcoin into the open market on its end, depositing the proceeds of the transaction, in dollars, into the merchant’s account.
That’s pretty much how it works with a normal credit card transaction. Although, with credit cards, it’s usually a few days before the bank transfers the proceeds to the merchant.
This would mean buyers who wish to pay in bitcoin can do so. And it means merchants aren’t obligated to figure out how to accept and manage bitcoins. As far as the merchants are concerned, the customer effectively pays in U.S. dollars.
From a bitcoin investor’s perspective, this couldn’t be better news. It may be the toe in the door bitcoin needs to appear to the broader retail community as a legitimate currency rather than a tech-geek novelty.
If this is the next step in making bitcoin more user-friendly, it could have a big impact on the price.
To take advantage of this potential move, investors have a couple of routes. The first is to buy bitcoin directly through a cryptocurrency platform or exchange. But that may feel a bit intimidating or confusing for first-timers.
An alternative is to invest in an ETF or a security that mirrors the price of bitcoin. Investors can access these through Fidelity, Robinhood, E-Trade, or Schwab. You can buy and sell bitcoin (and a limited number of other cryptocurrencies) just as you buy and sell stocks.
Crypto investment isn’t for everyone. In fact, many financial advisors and investment professionals avoid the sector because it’s still so new and volatile. But if you and your portfolio can stand the risk, the investment from Square could be the trigger that sets off the crypto-normalization wave the market has been waiting for.
In which case, now could be the time to make the move into crypto before the price begins moving higher.