Should You Accept Cryptocurrency?

With cryptocurrency moving into the mainstream, many small business owners want to know if it’s time to accept it as a form of payment.

Major retailers like Starbucks, Nordstrom, and Whole Foods already accept Bitcoin. Gamers on Microsoft and Twitch conduct transactions in cryptocurrency daily. PayPal has even set up a way for its users to purchase cryptocurrency and may soon allow cryptocurrency payments.

In other words, it’s becoming easier and easier for the average American shopper to access the form of payment.

But should small business owners accept crypto?

What is Cryptocurrency?

For those of you unfamiliar with cryptocurrency, let’s talk about what it is first.

According to Investopedia, “A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend…A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.”

Types of Cryptocurrency

There are several types of cryptocurrency, and they’re not linked. Think of them as different countries with different currencies. You can’t spend Japanese Yen in America any more than you can spend an American dollar in Italy.

Bitcoin isn’t the same as Ethereum, which isn’t the same as Litecoin.

In fact, there are thousands of cryptocurrencies out there.

Bitcoin and Altcoins

bitcoin accept cryptocurrency small business payment formBitcoin is the one you’ve most likely heard about; it’s been around the longest.

There are also Altcoins out there, which means an alternative to Bitcoin. These include Litecoin, Namecoin, and Dogecoin. They run much like Bitcoin with a limited supply.

Some Altcoins have their own systems and protocols, such as Ethereum, Ripple, and Omni. (Source: SoFi)

Things to Consider Before You Accept Cryptocurrency

The very first thing you must consider when accepting cryptocurrency is that it’s unlike any other currency you have received in the past.

Regulatory Concerns

For one thing, it’s not considered legal tender in a majority of the countries around the world, and specifically not in the United States.

The Library of Congress examined more than 130 countries worldwide regarding cryptocurrencies and found most of them don’t accept them as legal tender. As a result, most governments issue a warning about cryptocurrencies, saying they’re highly volatile and unregulated.

You Can’t Deposit Cryptocurrency in the Bank

Because they’re unregulated, you can’t just deposit a cryptocurrency in a bank. You need to sign up for a digital exchange to accept cryptocurrency. After that, you need to create a digital wallet to hold that cryptocurrency. From there you may purchase services or products from a limited number of individuals and businesses that likewise will accept the cryptocurrency that you hold.

Cryptocurrency exists separately from the other currency that you accept. To use cryptocurrency like cash, you need to exchange it for cash.

According to American Express, “Many enterprises today accept more than a dozen payment mechanisms in-store and online (cash, checks, wire transfers/EFTs, multiple credit and debit cards, and a variety of digital mobile wallet and/or payment apps) but none of these share many attributes with Blockchain-based cryptocurrencies such as Bitcoin, Ethereum, Dogecoin, Litecoin, and the rest.”

Cryptocurrency Isn’t Taxed the Same as Business Revenue

Because cryptocurrency is not legal tender, the IRS does not treat cryptocurrency like cash revenue. Instead, the agency treats cryptocurrency as property. So any transaction you do will be “barter” which is the more technical term for trading property (not cash).

That means if you accept cryptocurrency, you need to report the value of it the moment it is received and pay income tax as normal. And, if your cryptocurrency gains value before you use it or sell it, you must report that change in value as a capital gain.

There is no capital gains exemption for cryptocurrencies.

What’s more, if you use a third party to handle all of your digital currency transactions, you may receive a 1099-K form at the end of the year.

High Volatility

accept cryptocurrency small business revenue salesOne of the scariest things about cryptocurrency for a small business is that it is highly volatile.

When accepting the U.S. dollar as payment, what you see is what you get. Inflation and other economic issues have relatively little impact on the value of that dollar. The dollar is even very stable compared to other currencies. That means if you receive $1 today, that dollar is still worth $1 two to three months from now in terms of purchasing power.

You can predict your revenue.

When it comes to cryptocurrency, that’s not true. Take, for example, Bitcoin. On Feb. 1, 2021, a single Bitcoin was equal to $33,533.10. Three weeks later, on Feb. 21, 2021, that same Bitcoin was equivalent to $57,489.10. That’s a 71% increase.

However, a week after that, it was worth $45,260.10. That’s 34% higher than what it was worth on Feb. 1 but 21% lower than what it was just a week earlier.

Do you know how much you should be charging each day?

Bitcoin, along with other forms of cryptocurrency, is subject to massive swings in value. If you do accept cryptocurrency, you have the opportunity for significant gains but also substantial losses.

No Legal Recourse in Case of Loss

If you lose or someone steals your cryptocurrency, there is no legal recourse. Since there’s no agency overseeing cryptocurrency, there’s no one to protect you if something goes wrong.

Perhaps the best example of this is the San Francisco man who made headlines in 2020. The man forgot the password to his 7,002 Bitcoins worth millions of dollars on today’s market. (Source: BBC)

No one’s there to help him find the password so he can access those coins. If he loses them or cannot access them, no one is there to protect him.

The FDIC insures banks, so if someone steals your money, you’ll get some or all of it back. Police officers and the FBI are there to catch someone if they rob you. The SEC is there to make sure stock markets play fair and reduce fraud.

Currently, there’s no agency like that when it comes to Bitcoin and other cryptocurrencies.

Reasons Why You Should Consider Accepting Cryptocurrency

With all of these issues, it’s easy to say cryptocurrency isn’t for you. However, there are some instances where cryptocurrency may be suitable for your business.

How Old is Your Clientele?

If your bread and butter client is a Millennial (1981 to 1996) or part of Generation Z (1997 – 2012), cryptocurrency may be for you.

These generations are more likely to adopt cryptocurrency, and so they’ll be more willing to spend it and pay with it as well.

If you tend to serve an older clientele, say anyone over 40, then cryptocurrency may not be the best choice for your company.

Where is Your Clientele?

Some small businesses find cryptocurrency is a better answer because they deal with clients in many different countries. While national governments do not recognize it, cryptocurrency is something that is recognized by users internationally.

Many times, banks place a hold on payments from other countries. Cryptocurrency arrives in your digital wallet instantly. What’s more, you don’t have to worry about currency exchange when accepting cryptocurrency.

Cryptocurrency is something to consider if you have several international clients.

Diversify Investments

Established businesses with a large emergency fund may consider cryptocurrency as a method of diversifying cash.

In this instance, think about cryptocurrency as an alternative investment (sort of similar to a stock, but much riskier). Like stock, cryptocurrency can grow at a much faster rate than the interest on a savings account. However, also like stock, cryptocurrency can lose value. The major difference is that, unlike stock which is tied to an underlying public company (something of verifiable value), cryptocurrency is tied only to supply and demand. The objective value of cryptocurrency is only related to the amount of effort required to mine the coin.

Cryptocurrency is an uncertain store of value. However, as a volatile asset, it might be able an alternative investment that is worth considering for an allocation of your investment assets.

Inflation Hedge…Maybe

accept cryptocurrency inflation hedge small businessBitcoin supporters argue that cryptocurrency is a hedge against inflation, and that’s the best reason to invest in it. However, recent market trends have proven that that may not be true.

Fortune recently examined this trend. In an article posted in February 2021, Fortune pointed out that recently expectations of inflation have increased, but so has the price of Bitcoin. At the end of February, when the price of Bitcoin fell, inflation expectations did not change.

Given Bitcoin’s short history, it’s tough to determine if it’s genuinely a hedge against inflation like proponents claim. A better claim is not that it is counter to inflation, but rather it is independent of inflation.


Each small business will have to weigh the good with the bad when deciding whether to accept cryptocurrencies as payment.

Remember that cryptocurrencies can be highly volatile, with immense highs and lows. Cryptocurrency is not a legal form of tender in a majority of countries around the world.

In America, cryptocurrency is taxed as an investment and as income. What’s more, there is no legal recourse if something goes wrong with your cryptocurrency because there’s no central bank overseeing the currency.

Accepting cryptocurrency most likely isn’t worth the risk if you work with an older clientele who are not early adopters of technology. Cryptocurrency might be worth the risk if your clients are younger and have already adopted cryptocurrency as an acceptable payment form.

For small businesses that run month-to-month or even quarter-to-quarter, cryptocurrency can be a considerable risk. More stable companies may find cryptocurrency as a way to diversify funds or possibly hedge against inflation.

Make your decisions wisely based on your customers’ habits and your risk tolerance.

NOTE: Towne Advisory Services is not an investment firm, so we do not offer advice regarding investments or taxes. The information provided in this article is designed to be educational and may not be pertinent to your specific situation. As always, do your research, form your plans and then ask your investment and tax professionals. 

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