As a Libertarian, I love Crypto. I am excited about a currency that is difficult if not impossible to manipulate and isn’t held hostage by the whims of political breezes. That said, crypto is scary for small business owners as a currency option. You may not know this, but I owned a pizzeria from 2015 to 2019. During that time, being in Cheshire County, NH, we accepted BitCoin. NH is the self-professed crypto capital of the USA. Honestly, I had no interest in it but we had a few kitchen staff that were willing to be paid in BitCoin, so we accepted it as both a marketing opportunity and a tax reduction opportunity. Yes, I know that was probably in the “gray area”.
Let’s just say that I wish I still had those BitCoins… during the time we accepted BTC, the price was around $5,000 and today’s price is $29,800. I would have been sitting on a LOT of profit for those pizzas we sold for BTC.
While it may seem exciting to 6x your money as a business owner, that same volatility is terrifying from a cashflow perspective.
Today is June 5, 2022 and today’s price is $29,789. On June 1, just a few days ago the price was $31,821. If you sold your pizzas and beers on June 1 and converted those sales to BTC in real time like we did (as everything on our menu was priced in dollars), you’d be on the wrong end of market speculation. Let’s walk through the numbers.
First, let’s say you sell $500 worth of product on June 1 that is paid for with BTC at the conversion value of $31,821. That equates to roughly 0.1571BTC. If you don’t convert that to USD (US Dollars) immediately and let’s say you wait until June 5 (today), then the value of that $500 drops to $467.99 (0.1571BTC x 29,789). That’s a loss of $32.01 or 6.42%. That may not seem like a huge difference, but it is. I’ll show you why.
Most restaurants operate on a 10-15% net profit margin. That means that in $500 of sales, the restaurant is only going to profit $75 on the high end. If you lose $32.01 in currency conversion losses, then you’re only netting $42.99. That’s a huge difference… 57% in fact.
And, that is only if BTC moves a modest 6% – it’s dropped much more in a similar amount of time in the past.
But what if BTC goes up?
Great question – if BTC goes up now you have a profit on the conversion, which means you’ve realized a short term capital gain. That means tax reporting, ordinary income tax treatment on capital gains held less than 1 year, and the cost of managing those transactional gains.
I love cryptocurrency. I love the blockchain even more. I see deed transfers for real estate and car titles going digital thanks to the amazing technology that is BlockChain.
That said, until BTC and other cryptocurrencies become less volatile relative to the USD, they aren’t an ideal currency solution. Couple that with a free-spending short-sighted administration, and BTC as good of an investment it may be for the long term, the short term volatility makes it not ideal for small businesses.