RELEVANCE AND PROSPECTS OF

INVESTMENT IN CRYPTOCURRENCY
FOR EXISTING OR NEW FIRMS

Assignment for Entrepreneurship and New Venture Creation (ENTR601)

Submitted by:
Sudipto Roy
A91801922027
MBA Sem 1, Sec ‘B’
 INTRODUCTION

Created in 2009, Bitcoin is a digital asset that leverages a peer-to-peer network to

facilitate the transfer of value without intermediation from banks or central authority.

Bitcoin is a digital currency, with no physical bitcoins in circulation.

Bitcoins come into existence by the validation of transactions on the bitcoin network,
through a process called mining. Those performing this validation are referred to as
miners.

When miners successfully verify a group of transactions, they are currently awarded 12.5
bitcoin for their work, as well as the transaction fees included with each transaction.
Miners follow a set of cryptographic rules which keep the network stable, safe and
secure.

Bitcoin transactions are recorded and verified on a digital public ledger called
blockchain.

Currently there are approximately 17 million bitcoin that have been mined. It is estimated
that by 2140 there will be 21 million bitcoins, which is the finite amount allowed in the
system.

Why consider using crypto?

More than 2,300 US businesses accept bitcoin, according to one estimate from late 2020,
and that doesn’t include bitcoin ATMs. An increasing number of companies worldwide
are using bitcoin and other digital assets for a host of investment, operational, and
transactional purposes.

The use of crypto for conducting business presents a host of opportunities and
challenges. As with any frontier, there are both unknown dangers and strong incentives.
That’s why companies venturing to use crypto in their businesses should have two things:
a clear understanding of why they are undertaking that action and a list of the many
questions they should consider.
 OBJECTIVES OF STUDY

“Cryptocurrencies cut out the middleman in a transaction,” said Chris Poelma, CEO and board
director of PCS Software Inc. “Rather than store your money somewhere where you’re
dependent on an organization to safeguard it, you hold on to it through an encryption only you
have a key to. As we hear more stories of data breaches and hackers becoming more
sophisticated, cryptocurrencies sound more appealing to consumers looking for a safer way to
do business.”
Brito and Castillo (2013) highlighted the issues of apprehension for policymakers, consumers,
and regulators, and also discussed the benefits of a Bitcoin network, its properties, and
operations. They also emphasized on the current regulatory aspect and the potential regulatory
framework for Bitcoins.

The revolutionary invention - Bitcoin may succeed in solving the problem of double spending
without the interference of a third party. Usage of Bitcoins helps to mitigate the transaction cost
and is faster than the traditional avenues of payments. Access to the financial services in
developing countries can be augmented by using Bitcoins. Bitcoins have the potential to
improve the quality of life of poor people in the countries with strict capital control.

Apart from the benefits they provide, Bitcoins also have threats - fluctuation in value, security
concerns, and laundering money for financing illegal trafficking of goods. Considering the
regulatory aspect of Bitcoins, there is a huge uncertainty regarding the application of law
because it does not fit into the existing statutory definition. Existing laws and directives did not
envisage a technology like the Bitcoin. Bitcoin being an electronic payment system, is likely to
be scrutinized by different regulators, who may confront questions like legality of online
currency, licensing of money transmission, consideration of Bitcoins as currency or
commodities, and so forth.
Market volatility of Bitcoin in the year 2013 was 133%, which is far more than the volatility of
other currencies, which usually falls in the range of 8% - 12%. Gold exhibits volatility of 22%,
and even the riskiest stocks exhibit volatility of 100%, which makes the Bitcoin incompatible
and risky for the investors. Moreover, all multinational companies that deal in multiple
currencies endeavor to hedge themselves against the risk arising from the fluctuations in
currencies. However, having a zero correlation with other currencies makes the Bitcoin useless
for the purpose of risk management. For the Bitcoin to be established as a justifiable currency,
its value needs to be more stable.
The objective of this study is to find out the feasibility of using bitcoins in the existing business
environment as well as looking into the scopes of the future.
 CASE OBSERVATIONS

Bitcoin was designed to be a medium of exchange. The blockchain technology on which bitcoin
is based on offers many possibilities for computer science and all future businesses. For the past
decade experts as well as laypeople have been experiencing bitcoin in extremes. They either
have a very positive attitude or a very negative attitude towards them. Experts who have very
positive attitudes towards them believe that bitcoin creates new ways of conducting business
and new ways of trust relationships are managed. Experts who have very negative attitudes
towards them often emphasize the fact that they are often linked to negative connotations such
as being a tool for criminal activities or skipping social responsibilities such as tax avoidance
and corruption. They also emphasize the fact that it is a new, unexplored technology and an
unstable market.

Big-name brands are taking note: PayPal, Starbucks, AT&T, AMC Theatres, Microsoft, and
Whole Foods are among a growing battalion of organizations that now accept payment in
cryptocurrencies. In fact, nearly 16,000 venues around the world accept cryptocurrency
payments, according to Coinmap.org. And the cryptocurrency market is expected to grow from
$1.6 billion in 2021 to $2.2 billion by 2026, according to a report published by
MarketsandMarkets.
At the same time, cryptocurrency presents an opportunity for companies to create new and
innovative offerings around these digital assets. Examples range from mobile apps that allow
consumers to get started with cryptocurrency quickly and easily to platforms that automate
bitcoin purchasing for fledgling investors.

In addition to cost savings, cryptocurrency is enabling businesses to access new target

demographics. Take, for example, The Pavilions Hotels & Resorts group, a Hong Kong-based
hospitality group. The Pavilions is one of the first international hotel chains to embrace digital
currency payments. Customers can book rooms in many of the hotel chain’s global
destinations, based on the currency and location they are situated in at the time of booking,
using bitcoin, ethereum, or 40 other digital currencies.

According to Scot Toon, managing director of the Asia region of The Pavilions Hotels &
Resorts, accepting cryptocurrency payments has helped The Pavilions Hotel Group to nurture
lucrative crossover markets, such as luxury travelers who also happen to trade in
cryptocurrency.

Joseph Lupo agrees. Lupo is a general manager with CoinBits, which helps businesses and
investors securely build, manage, and protect their money in a private bitcoin portfolio. “We
saw a demand for higher net-worth individuals and businesses who want to invest in this new
asset class,” says Lupo. “They need an on-ramp and someone they can trust since bitcoin
doesn’t have a team or headquarters, so we started Coinbits Reserve to help businesses and
higher net worth individuals invest in bitcoin. We manage their investments but also focus on
education and what this new form of digital, finite money can do for them.”

While companies ponder potential business models and use cases for cryptocurrency, there are
factors to consider before entering the market. Cryptocurrency is still marked by volatility and
wild price fluctuations. And security and regulation compliance concerns can slow adoption in
more heavily regulated sectors, such as finance. “Banks are going back and forth on how they
can get into crypto compliantly,” says Xi of Prime Trust. “What’s holding them back is that
the regulations in this space require both crypto domain knowledge and compliance expertise
to understand. Making it worse is that there haven’t been clear regulations on what’s
compliant.”

Which major companies accept cryptocurrency?

Microsoft

Microsoft is one of the biggest companies in the world and they are starting to accept crypto as
payment. This is a big step for the industry and it shows that companies are starting to
understand how important it is to be accepting crypto. They are also doing a lot of research on
blockchain technology so they can better understand how it works.

PayPal

One of the largest payment processors in the world, PayPal, has announced that it will be
accepting bitcoin and other cryptocurrencies as payment starting in 2020. This is a huge
development for the crypto community, as it will bring more mainstream attention to
cryptocurrencies and could help legitimise them in the eyes of some consumers.

Starbucks

Starbucks has been a long-standing supporter of digital currencies and blockchain technology.
The company announced in late October that it would begin to accept bitcoin as payment for
goods and services. Starting in 2018, Starbucks will also accept ether, litecoin, and bitcoin cash
as payment.

Rakuten

Rakuten is a Japanese multinational e-commerce and cloud services company headquartered

in Tokyo, Japan. Rakuten operates its own global payment network and the company has been
accepted as a payment provider by crypto exchanges including Bitfinex, Binance, and OKEx.
Rakuten also runs its own cryptocurrency exchange called Rakuten

Twitch

Twitch, one of the world’s leading social media platforms for gamers, has announced that they
will be accepting Bitcoin and other cryptocurrencies as payment for subscriptions, ad views,
and other services. This move is likely to increase interest in crypto among Twitch users, who
can now use their favourite digital currency to pay for content they enjoy.

Pizza Hut

Pizza Hut is one of the largest restaurant chains in the world and has recently started accepting
cryptocurrency as a form of payment. The company announced their plans to accept bitcoin,
bitcoin cash, ethereum, and litecoin in May of this year. Pizza Hut joins a long list of major
companies that have begun to accept cryptocurrencies as a form of payment.
 FINDINGS

What are some of the benefits of accepting cryptocurrencies in business?

Compared to traditional point of sales (POS) systems, cryptocurrencies offer several primary
benefits that you may want to consider.

 Lower transaction fees: The lack of a central intermediary dramatically reduces

transaction fees. Small businesses that accept credit card payments via credit card
processing companies often incur fees of around 25 cents for each card swipe plus 2%
to 4% of the transaction total. These costs add up, which is why smaller stores often
have credit card purchase minimums on their POS systems. Accepting crypto can
reduce these costs to less than 1% of the value of each transaction.
 Merchant protection: Crypto’s decentralized setup also protects merchants from
fraudulent chargebacks. The transactions, like cash, are final because no third party can
reverse charges.
 Increased sales: Crypto enables small businesses to expand and open their doors to
international buyers who previously couldn’t access their products and services. For
example, one small electronics retailer reported selling $300,000 worth of merchandise
to nearly 40 countries by accepting cryptocurrency.
 Convenience for customers: Accepting cryptocurrency offers customers additional
ways to pay while providing an extra layer of protection for their information.

What are some of the risks associated with cryptocurrency?

Cryptocurrency isn’t without its downsides. Here are some of the risks of accepting
cryptocurrency:

 Technical barriers: Accepting cryptocurrency requires setting up a digital wallet on a

digital currency exchange, which could be technically prohibitive for small business
owners unfamiliar with the technology. Cryptocurrency is an information-dense field
with a relatively steep learning curve, which can be a significant obstacle when you’re
also trying to run a business. “As it stands now, small businesses in particular would
find it difficult to accept cryptocurrency,” said Serge Beck, CEO and founder of
blockchain ecosystem company Optherium. “And even without the technical obstacles,
the volatility of crypto values still creates a disincentive for entrepreneurs to hold digital
currencies.”
 Cryptocurrency volatility: Digital currency’s highest risk is price volatility, which
makes its value extremely unpredictable. For example, Bitcoin was first valued in
pennies in 2009 but rose to more than $65,000 per coin in February 2021. “You will
have to make some form of arrangement for translating your cryptocurrency back into
your currency of record,” said Areiel Wolanow, managing director of consulting firm
Finserv Experts. “Cryptocurrencies are volatile, so you will want to do this quickly and
regularly.”
 Cryptocurrency security: Although cryptocurrency transactions eliminate cyber
threats like stolen credit card numbers, the currency still isn’t 100% safe
 from cybersecurity threats. So far, there is no way to completely prevent cybercriminals
from getting their hands on users’ wallets. This is particularly dangerous because,
unlike fiat currencies like the U.S. dollar and the euro, cryptocurrencies are not backed
or insured.
 Regulatory uncertainty: Another issue with accepting cryptocurrency is that the
regulatory landscape will likely change in the near future. Lawmakers are currently
crafting regulations to govern it. Once regulations are in place, they will likely evolve
further, meaning business owners will have to adapt. “Because cryptocurrencies are
relatively new, there’s much uncertainty around how the government will work out
kinks in its regulation,” Poelma said. “Indeed, new regulations could be passed by the
time you read this. Cryptocurrency won’t be universally accepted until businesses are
certain they know how to report gains and pay proper taxes on cryptocurrency
transactions.”

Changes in cryptocurrency regulation will likely continue as cryptocurrency’s adoption

expands and new problems and difficulties arise.
 CONCLUSION AND SUGGESTIONS

One of the main criticisms given towards crypto is that there is no inherent value. Indeed, the
value it has is the value that the world provides it. However, the same could be said for
worldwide fiat currencies that have long strayed away from the gold standard.

Strong advocates for holding gold knew for years that extreme printing of money would lead
to a devalued currency. Since gold has a relatively finite supply and has historically been seen
as valuable, they use it as a hedge against inflation and a means of keeping the government out
of their bank accounts.

Interestingly, some of the staunchest cryptocurrency users hold coins for many reasons that
people hold gold. The main difference between the two is the very young age of
cryptocurrency, having no proven history of long-term value.

What crypto does do well is the ability to keep your coins secure using an offline wallet and
having a finite supply that encourages exponential growth of value as demand increases. With
the ability to instantly transfer coins anywhere globally, the change in demand and overall
value of cryptocurrency could make it a popular means of payment in the business world and
peer-to-peer.

One of the popular trends we see in the modern business world is giving early employees shares
of the company profits. Considering the vast growth of crypto in the past decade, providing
new employees a “company” cryptocurrency as equity shares could be a huge new trend.

In any case, it will be interesting to continue monitoring the future of cryptocurrency unfold.
What we could see happen is a revolution in the financial field or a colossal disaster for the
investors who have since made a fortune off the growth of crypto.

Some suggestions for

 Traders
- Traders can now use more Bitcoins, which is less risky than other modes of
currency.
- A long-term use of Bitcoins can serve the purpose of both large traders, medium
traders and small traders since considerable wealth can be generated by use of
Bitcoins.
 Markets
- Markets using Bitcoins can become more stable and profit and loss fluctuations
could be reduced in a long term.
- The algorithmic nature of Bitcoins will create larger opportunities for those
interested in honest trade.
 Society
- More social benefits can be attained if profits or trade benefits could be put use
for social work. This requires a more equitable algorithmic trade which is served
by Bitcoins.
 Economic Development
- Bitcoins may just change the way people trade in modern world. It could prove
to be a boon for the economy, specially under developed and developing
countries where equitable share or distribution of economic investments may be
required. There can be more foreign investments without much volatility.
- The more the number of transactions there are in Bitcoin based economy, the
greater number of entrepreneurs can think of hedging their exposure to foreign
exchange volatility by accepting payments from other parties and paying
suppliers or employees in the same currency. Therefore, it shall ensure ease of
tackling minimizing number of currencies in global trade.
- Bitcoin based wage payments can strengthen the demand for goods and services
that can be bought with Bitcoins. The greater the ability one has to buy and sell
what one needs exclusively within Bitcoin (Bitcoin based economy), the less
foreign-exchange volatility matters.