I came up with this when I noticed that a few vendors ask for FE because of the volatile bitcoin price.
If you're a vendor, here is what you do to eliminate the effect of bitcoin price drops on your money in escrow.
- Open an account on a bitcoin exchange which doesn't need KYC/AML (btc-e, kraken, bitfinex) and send it some bitcoins.
- When an order comes in, sell the same amount of bitcoins on the exchange to get USD.
- When the escrow is released, use the USD to buy bitcoins at the current price.
Every couple of days or whenever, transfer bitcoins in and out of the exchange (aka rebalance) and sell them for normal currency. If you already use that exchange to sell bitcoins you could not bother buying back and just transfer out USD.
Upside: No more currency risk.
Downside: Have to have a reserve of bitcoins on exchanges equal to all your orders, the exchanges might charge about 0.2% per trade, you have to pay the bid-ask spread each trade (which is roughly another 0.2%)
Thoughts? It seems simple, I wonder if people haven't already thought of it. If you're a vendor, how do you handle currency risk? Especially in large drops like November 2013.
Honestly it's not worth it. Bitcoin is volatile, yes, and has a certain value associated with it. The U.S. dollar has a value associated with it too, and it changes every minute like Bitcoin does, but you rarely hear about it.