Nice, looking forward to reading your thoughts. I've been thinking about this myself recently.
I'd suggest using a higher estimate for the value of rewards points. (You used a 1%.) You can explicitly get >1% cash back on many cards, so I'd argue that's really the lower bound.[1]
Most reward points can be redeemed for ~2%, with conscious consumers getting even more than that. [2]
Consumers are very aware of the value they're getting, too. If you read AMEX company filings, the redemption rate on MR points is >90%. I found that shockingly high. It's tough to get consumers to switch to bitcoin when it's worse value and more risk.
Thanks. You make a good point about the rewards. I thought 1% could be a decent estimate given that not everyone pays attention, some points are never redeemed and rewards over 1% are usually only for specific purchase types (e.g., gas). But I may very well have underestimated this. And if people do redeem at a 90%+ rate, then they will definitely notice if there are no rewards on the Bitcoin side.
I'd be very interested in hearing why a consumer would use bitcoins when a credit card option is available to them. The only reasons I can come up with are:
- The user is a bitcoin evangelist
- The user bought/mined bitcoins early and wants to cash in without selling them which would incur an exchange fee and tax hit.
- The user would prefer anonymity for that txn. Assumes no physical delivery (e.g. online porn)
- The merchant offers a steep discount for btc. But why would a merchant offer a fee more than the 0.35% referenced in the article?
I'd suggest using a higher estimate for the value of rewards points. (You used a 1%.) You can explicitly get >1% cash back on many cards, so I'd argue that's really the lower bound.[1]
Most reward points can be redeemed for ~2%, with conscious consumers getting even more than that. [2]
Consumers are very aware of the value they're getting, too. If you read AMEX company filings, the redemption rate on MR points is >90%. I found that shockingly high. It's tough to get consumers to switch to bitcoin when it's worse value and more risk.
[1] https://creditcards.chase.com/freedom?jp_cmp=cc/freedom/off/... [2] http://boardingarea.com/onemileatatime/2012/05/25/my-updated...