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Why car companies should avoid accepting cryptocurrency payments
Telsa first started accepting Bitcoin in March 2021: Since then, the trend of automakers accepting cryptocurrency payments has sparked considerable debate in the automotive industry.
However, while the concept is in line with a growing digital economy, there are several practical concerns that automakers should consider before implementation.
The cryptocurrency market is extremely volatile
Market volatility represents a huge obstacle to the adoption of cryptocurrency payments as it puts both the customer and the automaker at risk. Cryptocurrencies like Ethereum and Bitcoin often witness extreme price fluctuations, creating and destroying wealth in seconds. Bitcoin, the most prominent cryptocurrency, has an average monthly volatility of 50.5%, with a maximum volatility of 416%, according to V-Lab.
When making high-value purchases, such as purchasing a new vehicle, price stability is critical as the inherent volatility causes a level of uncertainty that both customers and automakers find indefensible. While crypto payments offer potential benefits of decentralization, the volatile market makes widespread adoption unsuitable for the automotive industry.
There is a limited demographic that crypto payments appeal to
According to a survey conducted by Financial Conduct Authority (FCA), as of August 2022, only 9% of adults in the UK held crypto assets, with the average value of crypto assets being $2,023. The FCA said 40% of those surveyed held less than $126 in cryptocurrencies, while 46% of those who held these assets said they were worth less than when they initially purchased them.
The limited number of individuals with substantial cryptocurrency holdings has further complicated the adoption of cryptocurrency payments by automakers. These restrictions significantly reduce the potential customer base for crypto payments. Only luxury car brands appear to be able to benefit from these programs, and Ferrari is the latest to accept cryptocurrency payments. However, Tesla also stopped accepting Bitcoin in May 2021 due to the negative environmental impact of cryptocurrency mining.
Regulation surrounding cryptocurrencies represents a considerable 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 facilitated by crypto transactions, such as the famous “Silk Road” online black market.
The story continues
Chinese automaker Nio has already been blackmailed by a hacker for $2.25 million in Bitcoin after a data breach. Automakers need significant resources and expertise to ensure compliance with an increasingly fragmented and rapidly evolving regulatory landscape.
There is an increased risk of legal liability and reputational damage that could dissuade automakers from adopting crypto payments. While the hype and allure of cryptocurrencies may make it seem worth it, automakers must recognize the barriers associated with pursuing such a venture. High market volatility, a limited customer base, and overcoming regulatory and operational hurdles make widespread adoption of cryptocurrency payments impractical. Therefore, automakers need to focus on more stable payment methods, until the cryptocurrency market and related regulations standardize.
“Why Car Manufacturers Should Avoid Accepting Cryptocurrency Payments” was originally created and published by Verdicta trademark owned by GlobalData.
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