Why Japan's bitFlyer is attracting investment despite punting on payments

One of the world's largest bitcoin exchanges, bitFlyer, has landed in the U.S. with a focus on institutional investors — a move that suggests bitcoin's days as a payments instrument are still a long way off.

bitFlyer, a Japanese company that launched in the U.S. on Tuesday, plans to add several currencies in early 2018, including Litecoin, Ethereum, Ethereum Classic, Bitcoin Cash and other alternative coins that may be more transactional than bitcoin, which is currently dominated by investors attracted to the virtual currency's skyrocketing market value. Bitcoin Cash, for example, supports P-to-P transfers and is designed to be amenable to payments.

bitFlyer controls about a third of the world's bitcoin trades, according to Coinhills. In the past few months, the company has attracted new investment and opened an office in San Francisco in anticipation of its move into the U.S. It has received approval from the New York State Department of Financial Services to operate as a virtual currency exchange, making it the fourth company to receive a so-called BitLicense.

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The company isn't ruling out cryptocurrencies as a major payments instrument, though it is following the market by not focusing directly on payments at the onset.

"We're launching with trading as our entry into the U.S. market," said Bartek Ringwelski, bitFlyer USA's chief operating officer. "That is where the institutions are focused on bitcoin."

Bitcoin has grown substantially in recent weeks, approaching $10,000 in value for the first time. That fast growth and fluctuation in value impair bitcoin's use as a payments instrument and lead to concerns of a bubble, but Ringwelski said the support of new companies and the overall acceptance of bitcoin indicate a more stable environment.

"Bitcoin has moved into a state of legitimacy and investors are eager to participate in a way that we didn't see earlier," Ringwelski said. Recent moves by companies such as Square to support development of new uses for bitcoin, he added, are a sign of the virtual currency's maturity and strength.

The company's U.S. marketplace is designed for professionals who trade $100,000 or more in virtual currency each month. bitFlyer USA will launch additional features, including global trading, in the coming year to make virtual currency trading more widely accessible.

While companies such as Overstock.com (which accepts bitcoin) and processors such as BitPay and Coinbase report growth in cryptocurrency payments, these instances are not mainstream or on an upward trajectory.

"Bitcoin is being viewed as a stored-value instrument right now, and Bitcoin Cash appeals to the earlier group of Bitcoin users who were more interested in transactions," Ringwelski said. "That being said, the Bitcoin Cash and other altcoins are showing promising growth in the virtual currency space."

The reasons include lingering concerns over bitcoin's risk, a lack of public knowledge as to how or where to use bitcoin to pay, and the complications of conversion.

"Acceptance of bitcoin and other cryptocurrencies as a form of payment by retailers is likely to remain a niche proposition for the foreseeable future," said Zil Bareisis,a senior analyst at Celent. "Unless bitcoin's speed of settlement, which is slowing down, and processing fees, which are on the increase, are addressed, it's not going to be suitable for retail payments."