On April 2, the Small Business Committee of the House of Representatives held a hearing examining the benefits and risks associated with Bitcoin for small businesses. Surprisingly given the forum, the panel of speakers did not include a single small business. Rather, the speakers were comprised primarily of researchers and academics such as Jerry Brito of the Mercatus Center and Mark Williams of Boston University.
Testimony focused mainly on the risks to small businesses posed by the high volatility and unpredictability of the price of Bitcoin. In particular, Mr. Brito stated his view that as Bitcoin became more widely used and traded, a derivatives market would develop which would result in the stabilization of the price of Bitcoin. However, L. Michael Couvillion of Plymouth State University pointed out that for many small businesses operating on small profit margins, even normal levels of volatility seen in the current Bitcoin markets could be devastating. Mr. Williams’ testimony was very similar to his testimony at the New York Department of Financial Services Bitcoin hearings held earlier this year, and he maintained that extreme volatility is inherent to Bitcoin and that this destroys its usefulness as a store of value or as a medium of exchange.
The sole Bitcoin industry representative was Adam White of Coinbase. Mr. White focused on the attractiveness to merchants of the finality and security of accepting payments in Bitcoin. He also noted that merchants do not need to take the risk of the volatility of bitcoin prices, because Coinbase allows merchants to instantly convert their bitcoin to dollars at the time of sale. However, Mr. Williams pointed out that the instant conversion feature offered by processors such as Coinbase and BitPay simply transfers risk from the merchant to the exchange, which are often thinly-capitalized venture-backed companies that may not be able to absorb such risk.
The questions from the committee focused heavily on the general risks posed by Bitcoin, including its lack of regulation and use in illicit activities. However, the committee members seemed particularly interested in the tax treatment of Bitcoin, asking numerous questions regarding the recent IRS Bitcoin notice and its implications for small businesses, and even surveying the panel members’ opinions on whether the IRS “got it right.” While one committee member asked “why does Congress care” about Bitcoin acceptance by small businesses, given the estimate by the panel that these account for less than 1% of the total merchant payments in the United States, other committee members seemed intrigued by the concept of Bitcoin and the direction that so-called “Bitcoin 2.0” ventures would take. A video of the hearing can be found here.