Bitcoin, the most common form of cryptocurrency, has been around for more than a decade now. While some healthy skepticism about its future remains, it’s been gaining traction with investors and consumers. In response, some businesses are wondering: Is it time to start accepting Bitcoin as a form of payment for their products and services? The answer hinges on the following seven factors.

1. Volatility

Price volatility is often the first thing that comes to mind when people think about any kind of cryptocurrency. The swings can be dramatic so merchants that accept Bitcoin need to convert it to cash promptly.

If you delay, you could end up on the hook for capital gains tax on top of the applicable income tax if the value rises. Conversely, if the value drops, you’ll still pay income tax on the fair market value of the Bitcoin on the date of receipt despite receiving less than that amount when you converted it into cash.

2. Transaction Fees

Bitcoin transfers take place immediately and are tracked in a transparent blockchain ledger. Unlike traditional currencies, the ledger doesn’t reside with a central authority (for example, a bank or government). Rather, it’s based across public peer-to-peer computer networks. This translates to significantly lower transaction fees compared to credit card payments. However; when transacting through exchanges such as Coinbase, Binance and others, transaction fees are charged and may become prohibitive depending on the size and number of transactions.

3. Transaction Finality

The decentralized nature of Bitcoin means that transactions are final and irreversible. On one hand, the finality eliminates the possibility of fraudulent chargebacks to merchants. On the other, it complicates the refund process. For example, you’ll need a clearly stated policy that explains how you calculate the amount of Bitcoin you refund, as the value likely will have changed since the date of the transaction.

4. Customer Interest

It’s generally wise to give customers more options to pay. Moreover, accepting Bitcoin could expand your market to new demographic groups, such as tech savvy Millennials and international customers.

However, Bitcoin isn’t right for every type of business. You could have little to no demand for the option, especially if your transactions tend to be on the smaller side. Many Bitcoin users hold on to it due to the price volatility, shying away from spending it on everyday purchases.

5. Technical Requirements

The learning curve for cryptocurrency can be steep for business owners already consumed with their daily operations, as well as their employees. For instance, transactions are conducted using private and public “keys” that users store in “digital wallets.” That means a business will need to open an account on a digital currency exchange.

6. IRS Reporting Obligations

Under the Infrastructure and Investment Jobs Act (IIJA) enacted in 2021, digital assets, such as Bitcoin, are treated as cash for anti-money laundering purposes. As a result, businesses that receive more than $10,000 in Bitcoin in a single transaction or multiple related transactions must report it to the IRS — or face hefty civil and criminal penalties. The hassle of collecting the requisite customer information for reporting can outweigh the benefits of accepting such payments.

7. Regulatory Uncertainty

The new IIJA reporting obligation may be just the tip of the iceberg when it comes to regulation of cryptocurrencies. The IRS has clearly indicated its intent to more aggressively pursue taxpayers who haven’t reported earnings from virtual currencies, and Congress continues to consider legislation addressing the currencies. Merchants that accept Bitcoin or any cryptocurrency should monitor regulatory developments to avoid any potential landmines.

Weigh the Pros and Cons

Not surprisingly, Bitcoin offers both potential advantages and disadvantages when it’s accepted as a method of payment. Contact us for help determining the right path forward for your business.