Earlier today, the Sacramento Kings announced that they will start accepting Bitcoin as a form of currency. Merchandise from the team shop will be able to be purchased with Bitcoin starting today. There are also plans to introduce the Bitcoin payments to online shopping for merchandise as well as in store ticket sales, as early as March 1st. (http://money.cnn.com/2014/01/16/news/companies/nba-bitcoin/index.html)
This is the first major sports team to start accepting bitcoin, which makes it a pretty monumental move. The relationship had come to be just over a week ago when the team reached out to BitPay at the Consumer Electronic Show in Las Vegas.
With Bitcoin now being accepted at a mainstream venue in America it seems natural to ask the effect the digital currency will have on the international currency markets.
Before the question can be answered, I will go into a little background on Bitcoin. It is in essence a blend between a credit card and cash and only exists online. One can make online purchases with it, much like a credit card, but can remain anonymous like a cash exchange. Another unique aspect of Bitcoin is the fact that there are no transfer fees. When you use any other online payment you pay a transfer fee, which in reality is payment for the bookkeeping. When doing wire transfers, a fee is charged up front and when you use a credit or debit card a percent of the purchase is charged to the merchant (retail customers do not see it). Bitcoin gets around this by paying anyone to handle the bookkeeping, or what they call mining. Whenever someone completes a transaction they effectively “mined” bitcoin and have some added to their account. Although there is no direct fee, currency is added to the digital world.
So back to the question of the effect of Bitcoin on the currency exchange. Bitcoin was introduced in 2009 and initially used for illegal purchases of regulated items. Over the first few years the currency was extremely volatile, dropping as much as 60% in a few hours (http://www.economist.com/blogs/freeexchange/2013/04/exchange-rates). However the government has worked to shutdown “Silk Road” the major venue for illegal purchases. Bitcoin is now moving to more legal uses, like sales with the Sacramento Kings. This is definitely a step toward a more stable currency.
But a more stable Bitcoin doesn’t necessary mean it will be widespread. Because no one is directly paid in Bitcoin, it is as if the market is strictly imports and exports. Unless the market is able to start paying out in Bitcoins for real world tasks, I don’t see it becoming widespread.