Bitcoin got a lot of love at Senate hearings in Washington last week, but the virtual currency no longer will buy you a meal from GrubGo.
Peter Wheeler, owner of the Maplewood, Mo.-based restaurant delivery service, says Bitcoin fluctuated too much in value and was too difficult to turn into dollars. “The volatility actually scared us, so we’d been cashing out our Bitcoins as quickly as possible,” he said.
When GrubGo began accepting Bitcoin last year, it amounted to 10 percent of revenue for a while. Wheeler said the transactions seemed to come from a small group of enthusiasts who were trying to promote electronic currency.
“We had people who were buying from us not because they were interested in our service, but because they were looking for a place to spend their Bitcoin,” he said.
Wheeler could have made a lot of money by holding on to the money those enthusiasts spent, but he’s focusing his business on food delivery, not currency speculation. One Bitcoin was worth $12 a year ago, according to CoinDesk, a website that tracks prices. It traded as high as $770 last Tuesday, the second of two days of virtual-currency hearings on Capitol Hill.
Speculators seemed to view the legislative interest – from the Senate Homeland Security Committee and a Senate Banking subcommittee – as an official endorsement of sorts, or at least an indication that the U.S. was taking Bitcoin seriously.
Bitcoin exists only as long strings of computer code. It is not backed by any government, and can be “mined” by anyone with a computer powerful enough to solve increasingly complex mathematical problems.
Bitcoin’s early adopters seem to be a mix of technology geeks, libertarians and, recently, traders captivated by its rapid rise.
At the Homeland Security Committee hearing on Monday, most witnesses had positive things to say about Bitcoin. Jerry Brito, a researcher at George Mason University, told senators that Bitcoin was “a remarkable technical achievement” with “the potential to improve the quality of life for the world’s poorest.”
Even Treasury’s money-laundering enforcer, Jennifer Shasky Calvery, director of the Financial Crimes Enforcement Network, said she was “very encouraged by the progress we have made” at regulating virtual currency exchanges.
Bitcoin was the preferred mode of payment at Silk Road, a black-market site that sold illegal drugs and other contraband. When the Federal Bureau of Investigation shut down Silk Road last month and arrested its founder, the news seemed to help Bitcoin’s reputation: If law enforcement could successfully root out illicit users, the virtual money might attract legitimate businesses.
Still, the vast majority of today’s users seem to see Bitcoin as a get-rich-quick scheme, not a day-to-day medium of exchange.
“From anecdotal reports, it seems to be mostly a vehicle for speculation,” said Francois Velde, a senior economist at the Chicago Federal Reserve Bank. “Before it becomes a genuine currency, it’s going to have to be more than just the occasional merchant here and there who takes Bitcoin.”
There may eventually be a demand for an alternative currency in places where traditional currencies have been unstable, like Argentina and Zimbabwe. Bitcoin, so far, hasn’t proven to be a stable alternative.