The Impact of Crypto Volatility on Merchant Adoption

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INTRODUCTION

Cryptocurrency has proven to be an instrument of great value in the order of the world’s economy as it gives individuals and businesses alternative forms of making payments and carrying out investments. And one of them is tremendous effects like efficiency speed in executing payments, lower costs, and potential savings due to a wider sales market. However, one of the hindrances to such mass usage is the volatility that is characteristic of most digital currencies.

The rate of volatility of cryptocurrencies can further be defined as the ability for currencies to undergo unsolicited price swings within very close time windows, that is… hours, minutes. An instance of this nature is where a cryptocurrency makes significant gains or dips within a day. Although these price swings could be beneficial to outside investors, the same is a cause of stress for the merchants who are known to be stability seekers. Due to the unpredictable nature of crypto prices, many businesses may be unwilling to start accepting it as a payment perception and thus will hinder the speed of its adoption.

For merchants, crypto volatility exposes them to financial risks, affects how customers perceive their trust and increases the burden on the management of the transaction process. It would be expected that if a merchant accepts payment in cryptocurrency, then he should welcome the existence of a given efficiency and decentralization wherever efficient and centralized processes in business exist.

• FINANCIAL RISK FOR MERCHANTS:

One of the most significant challenges of crypto volatility to merchants is the financial risk of fluctuating prices. A merchant might pay in cryptocurrency, only for the price to vary the next minutes, when he wants to convert the crypto to flat currency.

For example, a merchant receives a payment worth 100 dollars in bitcoin, but when he wants to convert to dollars, the value would have dropped to 80 dollars. This makes it difficult for merchants to manage their finances.

Also the time needed to process and settle cryptocurrency transactions is faster than the traditional method, but there can also be delays. During this delay, prices might change and this can result in unexpected financial outcomes for merchants. This adds to the risk of using cryptocurrency, and makes it less appealing to merchants

• REDUCED CUSTOMER CONFIDENCE:

This is another consequence of crypto volatility. When payments are made using the traditional currencies, users have more confidence since they know that their payment will remain stable. However when they make payments using volatile cryptocurrencies, customers won’t be so confident, as they may feel uncertain about if they are getting a fair deal, since the value of crypto changes rapidly.

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For instance, when a customer buy a product for 0.05 bitcoin, and immediately the value of bitcoin rises, they would have the feeling that they have over paid. Also if the value drops , the merchant would feel that he has been shortchanged. As a result of this , customers will be hesitant to use cryptocurrency as a method of payment.

In order to address this issue, some merchants have adopted stablecoins cryptocurrency as an alternative. These stable coins, helps to ensure that crypto payments are not volatile. However, they also limit the potential upside that comes with holding cryptocurrency like bitcoin.

• COMPLICATED PAYMENT PROCESSING:

Another challenge is the fact that accepting cryptocurrency as a method of payment is complex, especially because of price volatility. Unlike the traditional payment method that is straightforward, cryptocurrency payment requires merchants to monitor the market constantly in order to avoid running on a loss.

In order to prevent this complexity, merchants need to use crypto payments processors like BitPsy or CoinGate. This will allow the merchant to convert cryptocurrency into flat currency automatically. Although this minimizes the impact of volatility, it also add extra charges for each transaction. There by reducing the potential cost reduction that comes with using cryptocurrency.

Also, it will also be challenging for small businesses, that do not know how to manage these complexities.
For merchants that are not familiar with crypto markets, there will be an added burden of handling volatile currencies, converting them , and managing exchange rates. This may at the end outweigh the benefits of using cryptocurrency as a payment option.

• LIMITED ADOPTION AND FRAGMENTATION:

Lastly, crypto volatility, hinders its wide spread adoption. Some merchants, might accept cryptocurrency but this acceptance is limited to a few selected coin, there by leaving out smaller or more volatile assets. This limited adoption means that users that hold a variety of cryptocurrencies won’t be able to trade with they’d preferred assets.

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As a result of this volatility, larger, and more established companies might be discouraged from adopting cryptocurrency as a method of payment, because they prioritize financial stability and predictability in their payment system, and so the risk of volatility is seen as too risky. This makes cryptocurrencies to remain largely relegated to niche markets and smaller businesses, there by slowing the overall growth of the ecosystem

CONCLUSION

Crypto volatility is one of the major challenges in merchant adoption. Although blockchain and cryptocurrency offers numerous advantages, the instability in crypto priced introduces significant financial risks and complexity for businesses.