Jenny Junkeer of Junkeer New Era Consulting advises SMES to wait their turn and not jump on the hype-train when it comes to incorporating Bitcoin and other cryptocurrency payment gateways. Do you agree? Let us know in the comments below.

The Second Mouse gets the Bitcoin…

The blockchain industry is currently a tempting mess – like a piece of cheese on a mouse trap.

The police forces detest it, governments fear it, the Chinese ban it; but its track record is incredulously profitable. This love-hate relationship it has with authorities could send it towards the same fate as the 3D printing of yesteryear; promising revolutions but falling short; or resulting in a whole new world order.

The Hate

On the 4th of September, China’s central bank announced that initial bitcoin offerings will become illegal and asked all related fundraising activity to be halted immediately. They issued the strongest regulatory challenge so far to the burgeoning market for digital token sales. It immediately shut down some of the global cryptocurrency exchange market’s largest trading platforms including OKCoin, Huobi, and BTCC.

According to data from Coindesk, Bitcoin tumbled as much as 11.4 percent, the most since July, to $4,326.75 AUD. The ethereum cryptocurrency was also down more than 16 percent since the news.

Amidst all the disappointment from investors in the Chinese government’s once again non-transparent and highly controversial manoeuver, speculations emerge surrounding China’s unclarified motive. Most industrial experts are favouring ‘protectionism’ and ‘economic threat’ as the main basis of argument.  Some even believe that proper licensing methods are being negotiated to prevent it from entering the black market.

The Love

Despite these strong oppositions in late September, we once again see the rebirth of interest in Bitcoin trading, leading to a recent 7 month high. In particular, a 295% Bitcoin derivatives return was achieved by a man named Jay Smith, through platforms like Bmex and leading the trend on eToro. There has also been a series of talks to ride the bitcoin roller coaster before a guaranteed crash is due to it being bubble. This led to the creation of the largest hedge fund of its kind; Galaxy Digital Assets, planning to start with a $500 million portfolio.

The Cheese

Just like a piece of cheese that sits on the open floor of a living room in an apartment, Bitcoin sure smells nice to a hungry mouse. It is understandably tempting to sink some teeth into it, despite the risk of it being a trap.

However, humans are smarter than the mouse. Despite these vastly conflicting views on where crypto-currencies will head, with a high level of certainty we can be sure of some things:

  1. Regulations will become tighter in all countries as cryptocurrencies dominate more and more markets.
  2. As a result, Incumbents will be forced to improve, whether it be in terms of transparency or tracing.
  3. A winner will likely emerge; the Incumbent or entrant who has it all figured out, from governments down to operation.
  4. In the meantime, Initial coin offerings (ICOs) will still give Silicon Valley and Wall street a run for their money, posing as the key challenger to traditional IPOs of start-ups.
  5. Once its legality becomes clear, the market will slowly subside in speculative trading and pricing fluctuation.
  6. Another wave of regulations could be imposed on this new generation of cryptocurrencies.
  7. In the meantime, plenty of opportunistic investors who lack resources and capabilities are likely going to be hurt.
  8. We do not know if cryptocurrencies will become mainstream like paper money, but its successors will likely survive in a different form to what is available on the market currently.

Hence, even if we can confirm that the cheese is not a trap, we cannot be sure about the presence of cats waiting for us along the way.

The theory

First mover advantage is a phrase that has been around for so long we believe it to be a known fact, despite the empirical evidence which does not support it. We assume early entrants tend to make a large and lasting impression on customers, earning strong brand recognition. Buyers often face high switching costs in moving their business to a later entrant. However, with the pace that technology develops these days, that is rarely true in the online market.

Numerous SMEs (small and medium enterprises) are thinking of becoming the first to allow cryptocurrencies as payment on their internet platforms. However, the cost of convincing customers to use Bitcoins, investing early into platforms that use Bitcoin as well as storing a stockpile of cryptocurrency will come at a much greater price than the likelihood of materialising future profits.

So  even though the market may appear attractive, it is probably advisable for SMEs to wait their turn and not jump on the hype train. Instead, ask this question; how will having a Bitcoin payment gateway affect our cost or convenience to our target customers? Are there valid alternatives to cryptocurrency in the short-term?

SMEs should play the waiting game. After all, it is the second-mouse that gets the cheese.