The Startup Law Guide
When it comes to starting a business, amassing the necessary funding can feel like an uphill battle. For that reason, some startups naturally consider branching out beyond the traditional forms of investment to get funding wherever they can find it.
One such non-traditional currency that startups might consider is bitcoin. The world of bitcoin is ever-evolving, and, because bitcoin is relatively new, its longevity as a currency remains to be seen. So, while you can, in theory, accept any form of funding you want for your startup, it’s important to understand exactly what it is that you’re accepting before you venture down the bitcoin road.
The Pros and Cons of Funding Your Business with Bitcoin
Bitcoin is a form of cryptocurrency that is traded electronically between parties. Because bitcoin was created less than a decade ago, to many it’s still a mystery. Traditionally, bitcoin has been used primarily as payment for goods and services, rather than as the basis for large investments. That said, there’s nothing preventing companies from relying on bitcoin as a major source of funding if they’re comfortable doing so.
An upside to being open to accepting bitcoin is that it’s a largely untapped source of funding. Bitcoin enthusiasts are always looking to support bitcoin-friendly businesses and are eager to invest their bitcoin fortunes. Because many businesses are still skeptical of the new currency, bitcoin investors tend to have limited options for investing, and may jump at the chance to help you get your business off the ground.
Because bitcoin differs from traditional currencies, it carries some unique risks. Perhaps the biggest concern that many people have about bitcoin is that it’s subject to price volatility and its exchange rates can potentially see wide fluctuation. If you accept bitcoin and plan to hold onto the funds for a while, you could see the investment grow or diminish quickly based on exchange rate fluctuations. Because most companies only encounter bitcoin in a handful of sales, it typically plays a small role in the overall financial picture, making concerns about fluctuation less pressing. If you’re planning to fund your entire business with it, there’s obviously a lot more at stake. In short, holding onto bitcoins is a gamble, which might not be the best approach for a new business with limited funds.
Another issue with having a large chunk of your funding in bitcoin is that, if you want to use it for startup business expenses, you have to find providers who have what you need and are willing to accept bitcoin for it, which might not be an easy task. Essentially, this is the same problem your investors had – the universe of businesses willing to accept bitcoin is still very limited.
The safer move, then, would be to immediately convert the bitcoin investment into traditional currency. By immediately cashing out, you avoid potentially wild fluctuations in the amount of your investment. Accepting and exchanging bitcoin can be complicated, so you need to be sure that you understand the mechanics before going down the bitcoin road. As with any major business decision, you should consult with an experienced business law attorney to determine whether accepting bitcoin as funding for your startup is the right answer for your particular business.
Legal Guidance In Building Your Business
At The Gouchev Law Firm in New York, we work with businesses of all sizes, including startups and franchise businesses. Call us at (212) 537-9209 or schedule a free strategy session today to see what The Gouchev Law Firm can do for your business.
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