Reeds Jewelers encouraged customers to pay for holiday gifts with bitcoin this year, but the family-owned business isn’t hanging onto the virtual currency for long.

Like many of the growing number of merchants that accept bitcoin, the regional jewelry store immediately converts the payments into real-world dollars. The strategy is aimed at protecting Reeds from big price swings that have plagued the virtual currency for much of the year—and underscores how many business owners remain skittish about the long-term prospects for...