SMBs May Need to Reevaluate Their Cryptocurrency Plans

Over the past year, the booming cryptocurrency markets have received plenty of attention from investors, businesses, and individuals alike. As the momentum in the space built up to a fever pitch, it seemed like businesses were practically falling all over themselves to associate themselves with the craze. Now, there are some signs that at least within the business world, crypto-mania may be reaching an end.

Despite the recent setbacks for cryptocurrency companies and their related businesses, market cheerleaders have continued to extoll the virtues of cryptocurrencies to business leaders of all stripes. There appear to be storm clouds on the horizon, however, and objective observers are starting to sound the alarm bells to anyone willing to listen. For small businesses, that means it might be time to reevaluate current plans to accept cryptocurrencies (or existing payment processing systems) and delay any thought of betting on the crypto space. Here’s what’s happening.

From Boom To Bust

Businesses that rushed headlong into the cryptocurrency space have been paying a heavy price in recent days. The most visible example, of course, is the Long Island Iced Tea company, which famously changed its name to Long Blockchain in December of last year while making a puzzling promise to investors that they would be morphing into a technology company. Today, they face delisting from the Nasdaq stock exchange and a subpoena from the Securities and Exchange Commission over the whole fiasco.

Long Blockchain is hardly alone, though. Researchers have been analyzing the underlying data in the cryptocurrency startup space, and reached a troubling conclusion there, too. They found that the data indicates that more than half of crypto startups to date have failed within four months, taking untold amounts of investor capital with them. That statistic paints an ominous picture that would seem to indicate that even serious attempts to monetize cryptocurrency technology have thus far faced an uphill climb.

Public Interest Declining

As it turns out, the struggles facing companies within the cryptocurrency space aren’t the primary reason that business decision makers on the outside should be concerned. After all, most small businesses are only on the periphery of the cryptocurrency space, with the exposure that’s often limited to their payment processing and settlement services. What should worry them, however, is the fact that all indications point to waning interest in cryptocurrencies, in general.

For months, cryptocurrency evangelists have insisted that mass-adoption of the technology is right around the corner. They claimed that as more retailers began accepting cryptocurrencies for goods and services, the more people would reach into their cryptocurrency wallets to purchase things. Not only has that not happened, but the data indicate that the declining value of Bitcoin and other cryptocurrencies is leading to a corresponding drop in interest in cryptocurrencies themselves. For small businesses, that begs the question: should we even bother with cryptocurrencies at this point?

Acceptance Rates Declining

It appears that some of the largest companies in the world have already started to read the tea leaves to answer that very same question. Tech giant Microsoft has been showing signs that it’s getting ready to dump Bitcoin as a payment option across its digital properties, and Starbucks has gone to great lengths in recent days to deny that they have any plans to accept cryptocurrencies as payment any time soon. Both have, at various times, cited price volatility as one of the reasons that they remain skeptical of fully embracing cryptocurrencies.

It isn’t just retailers that are pulling out of the market, though. In April, one of Bitcoin’s earliest adopters in the payment processing industry ceased support for the cryptocurrency. Square, Inc., one of the most widely-used and popular payment processors in the small business space, said at the time that they believed that cryptocurrencies weren’t well-suited as a means of exchange. Square also reported that usage of Bitcoin on their platform had already been in decline for months before they reached the decision.

Uncertainty Is Anathema to SMBs

It’s important to note that the very volatility that has been driving corporations away from cryptocurrencies poses an even larger risk for small businesses, who lack the financial wherewithal to survive wild swings in the value of their assets. The bad news is that the volatility in the market doesn’t seem like it’s going to end anytime soon. In fact, a deep dive into some of the biggest market fluctuations seems to indicate that they are caused not by any inherent value changes but rather by the news of the day.

That’s the real takeaway for small businesses mulling their involvement with cryptocurrencies. As the initial boom in the market has subsided, the available data has shown that the market has come to be dominated by speculators who make their money trading on the very price fluctuations that are undermining the utility of cryptocurrencies. That means there aren’t all that many people holding cryptocurrencies as an everyday financial instrument as a percentage of the general population, making accepting cryptocurrencies or investing in them a risky proposition for small businesses with little practical value in the real world.

The Bottom Line

For small businesses, survival is all about innovation and delivering a unique value proposition to customers. That’s a big reason why cryptocurrencies and small businesses looked like they’d be a match made in heaven. So far, that’s not how it has played out in the real world. Adoption rates among individuals and businesses haven’t grown the way crypto-evangelists would have you believe, and companies like Square, Inc. (who are in a unique position to know), don’t see how cryptocurrencies as presently constituted represent a viable payment method for small businesses.

On top of all of that, there’s also the fact that at the moment, small businesses have little to gain from embracing cryptocurrency, but their volatility means there’s plenty to lose. Until that changes, small businesses should tread very carefully when getting involved in the crypto markets. For those that decide to hold off, the smarter play would be to wait and watch as payment giants MasterCard and PayPal develop technology that will link cryptocurrencies to traditional fiat currencies. If they succeed, they’ll provide a valuable buffer for small businesses that want to get involved with cryptocurrencies, and that may quell some of the market’s ongoing upheavals. Until then, cryptocurrencies will remain a big gamble for SMBs, who will proceed at their own risk (and peril).

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