How Bitcoin Could Power a New Wave of Small Business Innovation

I wrote a few months back about bitcoin (BTC), which is the best money we have ever had. Now, I want to see where the rubber hits the road with bitcoin and cryptocurrency. What impact can they have on small businesses.

According to the U.S. Small Business Administration, 99.9% of U.S. businesses have 500 employees or less. 99.7% of U.S. companies employ paid staff. Many small-business owners are the clients of financial advisors. This article explains how bitcoin can help them increase their margins and save capital.

There are many uses for bitcoin, and beauty is often in the eyes of the beholder. Block (SQ), recently published a report titled “Bitcoin Knowledge and Perceptions.” It found that people in higher income brackets view bitcoin primarily through an investment lens. They see it as a “potential to make money,” while those in lower income brackets view it through a payments lens. “To purchase goods and services” was the item with almost equal weighting and came in second place for both segments.

Small businesses can see a brighter future if they look at payments.

I met the owner of a local restaurant earlier this year and began to talk about bitcoin payments. He said that 35%-40% were in cash, but now it’s 5%. He claimed that he spends almost $100,000 per year on processing fees, even though his food prices have increased by double digits. He has three options: Increase prices to lose customers, purchase lower-quality food that could expose him to reputational risk, and find a way to regain some margin.

Merchant fees have increased as consumers use credit cards more often. The average fee for a $1 million business is 3.25%. That’s $32,500 wasted. This is significant when you consider the fact that the US average small business has a 10% profit margin according to the Corporate Finance Institute and that only 40% of small businesses can be profitable.

One solution: Small businesses can accept bitcoin, and then add a “fiat fee”. This will encourage adoption of bitcoin and protect margins.

A small business owner can also hold bitcoin to help them save money for future purchases. Dollar-cost averaging (DCA), is a daily practice for a business that accepts Bitcoin. Although the compound annual growth rate of bitcoin (CAGR) will fluctuate depending on when it is taken, historically, it has been 48%.

Wait, there’s more. Bitcoin payments are cheaper than credit cards. This means that you can not only get “better money”, but you also have a lower cost of accepting payment. OpenNode can accept payments on the Lightning Network and the bitcoin blockchain.

OpenNode and Stripe recently announced a partnership which will allow businesses to convert their credit card payments directly into bitcoin. This will increase the dollar-cost average side of things.

Business owners can create their own self-governing ability to accept bitcoin payments. This is possible using open-source software such as BTCPay Server. Voltage can help you outsource this part of your bitcoin node. You don’t have to manage it yourself, though you might. OpenNode offers an easy-to-use plug-and-play solution that will allow you to access liquidity on the Lightning Network.

Although the setup of Voltage and BTCPay Server is more complicated, it’s still very efficient and cost-effective. Lightning is a great option for small business owners. With Lightning’s offerings such as Flow, Magma and Zero-Fee Routeing, liquidity access will be significantly improved over the next few months.

What about taxes? The U.S. would allow customers to have capital gains or losses on bitcoin payments. This is a great news because some tools allow you to toggle between bitcoin and dollars (mainnet, lightning), making this potential problem virtually non-existent. Strike is the most widely used option. Strike allows customers to connect to legacy banks and then pay with Lightning Network bitcoin on chain invoices without any tax consequences.

I believe that the taxable event associated with bitcoin payments will soon be removed. Sen. Cynthia Lummis, R-Wyo., has introduced TheResponsible Finacial Innovation Act. The bill would allow for tax exclusion on payments above $600. This would allow almost all transactions in small businesses to be exempted if passed. The average transaction is $84, Experian reports.

A small business would not want to make an additional $15,000-$30,000 per year in profits, with savings that grow as they grow. What if their business accounts were to grow, and they could see their purchasing power increase instead of decreasing? What innovative decisions could they make? What number of jobs could they create? Bitcoin will not only be a tool for small businesses to ease the current economic pain, but it will also allow them to fuel a new wave in entrepreneurial growth.