How to deal with price volatility when pricing your goods and services in Bitcoin

If you are like me, you are excited about the whole idea of using bitcoin as an alternative currency. You are motivated to take control of your money instead of leaving it in the hands of central bankers and politicians. The problem you’ve found is that it is hard to price your products and services in bitcoin when there can be dramatic price swings in a matter of days.

To deal with the problem I recommend that you use a price that is based upon the moving average of the last X number of days. Then simply update your prices once a week. I like to update my prices on Mondays and I currently use the 7-day simple moving average. This can smooth out your pricing and help you deal with these swings in a much more serene fashion.

Here is where you can pull up charts and price data where you can calculate the simple moving average:

http://bitcoincharts.com/charts/

You can play with different time periods to see which works best for you. Shorter time periods give greater weight to recent price levels but tend to fluctuate more widely than longer time periods.

If you wish to accumulate more bitcoin then you will want to give your customers a better exchange rate so that they are effectively receiving a discount when paying you with bitcoin vs. dollars. This discount acts like a “coupon” which rewards customers for paying you in bitcoin. If you find that you are accumulating more bitcoin than you can handle simply adjust the exchange rate to favor dollars over bitcoin.

As a young currency we can expect bitcoin’s exchange rates to continue to fluctuate wildly but that will taper down over time if it becomes more widely accepted and exchanges mature. At some point you may decide to drop the dollar entirely and price your products and services only in bitcoin. Imagine that.

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