Telsa first started accepting Bitcoin in March 2021: Since then, the trend of automakers accepting cryptocurrency payments has sparked considerable debate within the automotive sector.
However, while the concept aligns with a growing digital economy, there are several practical concerns that automakers should consider before implementation.
The cryptocurrency market is extremely volatile
Market volatility poses a huge barrier to the adoption of cryptocurrency payments as it puts both the customer and the automaker at risk. Cryptocurrencies such as Ethereum and Bitcoin frequently witness extreme fluctuations in price, both creating and destroying wealth in seconds. Bitcoin, the most notable cryptocurrency, has a monthly average volatility of 50.5%, with a maximum volatility of 416%, according to V-Lab.
When making high-value purchases, such as buying a new vehicle, price stability is paramount as the inherent volatility causes a level of uncertainty that both customers and automakers find indefensible. While crypto payments offer potential benefits of decentralisation the volatile market makes widespread adoption unsuitable for the automotive sector.
There is a limited demographic that crypto payments appeal to
According to a survey conducted by the Financial Conduct Authority (FCA), in August of 2022, only 9% of adults in the UK held crypto assets, with the mean value of crypto assets being $2,023. The FCA stated that 40% of those surveyed held under $126 in crypto, with 46% of those who held these assets saying they were worth less than when they initially purchased.
The limited demographic of individuals with substantial cryptocurrency holdings further complicated the adoption of crypto payments for automakers. These restrictions significantly reduce the potential customer base for crypto payments. Only luxury car brands seem to be able to benefit from these schemes, with Ferrari being the latest to accept crypto payments. However, even Tesla stopped accepting Bitcoin in May of 2021 due to the negative environmental impact of crypto mining.
Regulation around crypto presents a sizable barrier
The regulatory landscape surrounding crypto transactions is in a state of flux in most countries. This means that implementing such a payment system would require automakers to navigate a web of regulations such as Know Your Customer (KYC) requirements and Anti-Money Laundering (AML) policies. This is to combat the large amounts of criminal activity that are facilitated by crypto transactions, such as the famous ‘Silk Road’ online black market.
Chinese automaker Nio was already blackmailed by a hacker for $2.25m in Bitcoin after a data breach. Automakers need significant resources and expertise to ensure compliance with the increasingly fragmented and rapidly evolving regulatory landscape.
There is an increased risk of legal liabilities and reputational damage that could deter automakers from adopting crypto payments. Although the hype and allure of cryptocurrencies may make them seem worth it, automakers must recognise the barriers that are associated with pursuing such a venture. High market volatility, a limited customer base, and navigating regulatory and operational hurdles make the widespread adoption of cryptocurrency payments impractical. Therefore, automakers must focus on more stable methods of payment, until the crypto market and regulations around it standardise.
“Why automakers should avoid accepting cryptocurrency payments” was originally created and published by Verdict, a GlobalData owned brand.
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