Will Overstock.com be bitcoin’s great liberator?

The bitcoin faithful are ever on the lookout for signs that their virtual currency is as good as cash, more than a speculator’s dream and not merely a device for criminal transactions.

So you can expect them to make a lot out of the announcement that you’ll soon be able to pay for goods at the retail website Overstock.com with bitcoins. Some news reports already have proclaimed Overstock the first “major” retailer to accept the things.

That may be stretching the term “major” a bit--Salt Lake City-based Overstock mostly sells closeout merchandise for manufacturers looking to liquidate old inventory quickly and cheaply--but let it go. The real question is whether this places bitcoins anywhere near on par with the currencies you’re familiar with, like dollars and euros, or whether it’s mostly a marketing gimmick. A close look suggests it’s the latter.

Overstock Chief Executive Patrick Byrne himself seems fully alive to the marketing aspect of accepting bitcoins. “I think we’ll pick up market share,” he told me, “the market share of people who’d prefer to pay in bitcoin, with an honest currency.” He says customers may be able to do so as soon as four months from now, though the second half of 2014 is his target date.

As we’ve been documenting, bitcoins recently have had a rough ride, in part because the Chinese government effectively shut down the largest bitcoin trader on the planet, BTC China. The value of bitcoins plummeted. Until then, they appeared to have some utility as a means to transfer capital from country to country at low cost and perhaps away from the prying eyes of foreign exchange officials. But with the Chinese action, even that’s in doubt.

As you might tell, Byrne hails from the ideological camp of bitcoin believers. These are people convinced that money under the control of governments and their central banks has been systematically devalued for political advantage. The world monetary system has gone to hell since the gold standard went out, they believe. To them, bitcoins are the closest thing to gold that today’s technology can offer.

Byrne, who controlled more than half of Overstock’s shares as of last May, says his decision to accept bitcoins is “also philosophical, part and parcel with my belief in a limited government--that if you want limited government you can’t give it power to expand the monetary base.”

That said, however, he’s not foolish enough to expose Overstock to what may be bitcoin’s biggest failing, which is its incredible price volatility. Because bitcoins don’t represent any intrinsic store of value and aren’t backed by a sovereign government, their exchange rates versus traditional currencies typically have more ups and downs than a malaria patient’s fever chart. Over just the last month, they’ve been quoted as high as $1,210 and as low as $455.

Any retailer holding bitcoins for any length of time, therefore, is asking to be slaughtered. Overstock is no exception. “We’ll want to avoid any currency exposure by converting bitcoins to dollars as soon as they come in,” Byrne told me, evincing rather more faith in the stability of the USD than the BTC. He says that once there’s a way to hedge bitcoin currency risk, say through an over-the-counter derivative, he’ll use it. But none is yet on the horizon.

That underscores that Overstock’s acceptance of bitcoins may be largely about marketing, especially for buyers from countries with hard currencies, like the U.S. Byrne says that the website still will denominate its merchandise prices in dollars, at least at first. But buyers will be able to pay in bitcoins at checkout, at what is likely to be an up-to-the-minute exchange rate.

That’s the way other retailers who accept bitcoins handle them. The electronics retailer Bitcoinstore.com, which only accepts payment in bitcoins, lists the price of every item in dollars and bitcoins--but the dollar price remains stable and the bitcoin price changes constantly, sometime with every page refresh. Once an item is placed in a buyer’s shopping cart, the store sets the bitcoin price for checkout, but only for a maximum of 15 minutes.

It’s certainly possible that as more retailers accept bitcoins, people will feel more comfortable using them, but they’re a long way from becoming anything but an inconvenience to most people, who are likely to ask: Why bother?

Byrne describes the path to wider acceptance as a “chicken and egg problem--there hasn’t been a strong reason to use bitcoins because there’s not a major retailer who takes them,” he says. Plainly he hopes Overstock will be the great liberator, but as long as even Overstock is nervous about holding bitcoins for more than a few minutes at a time, that’s wishful thinking.