A common criticism of Bitcoin is that, after more than ten years of existence it is not being used widely for online payments and even less so in supermarkets or restaurants. In fact, around 2015 several major companies such as Dell, Microsoft or Expedia announced that support for Bitcoin as a means of online payment but, over the years, some of these companies gradually eliminated this possibility due to lack of use.
Nowadays, hoarding your wealth in a in a financial market is relatively easy and accessible thanks to technology. Acquiring bonds, ETFs, shares, gold or Bitcoin from your smartphone is an increasingly simple and inexpensive process. And it could be even simpler and cheaper if it weren’t for regulations and lack of competition which unnecessarily introduces a multitude of bureaucratic and fiscal red tape. It is therefore cheap, simple and quick to have your assets in, for example, a more or less conservative ETF and swap it to the usual means of payment in your country.
Demanding an asset, whether it is money or not, consists of holding a balance of that asset for a period of time, i.e. hoarding it. Demanding something in order to get rid of it immediately does not confer value to an asset.
Currencies such as the dollar or the euro do not hold their value because they are means of payment, but because their issuers are diligent enough to keep their value reasonably stable and it is therefore rational to hold cash balances in those currencies, at least in the short term.
The clear demonstration that being a means of payment renders little value is that currencies that are legal tender, such as the Venezuelan Bolivar or the Argentinean Peso, do not maintain their purchasing power even when their States force their function as currencies even further by means of aggressive interventions such as capital controls or even price controls. Those measures are useless to keep up their value. Even more telling is the incontrovertible fact that almost all currencies that die of hyperinflation do so as official currencies.
Because using something as a means of payment is nothing more than selling that something. And when you sell something it is because it has less value for you than what you get in exchange. Therefore, if the person who receives a means of payment does so out of a mere legal obligation but does not want to treasure it, he will try to get rid of it immediately.
The great Carl Menger defined money as that good that we all want to have because it allows us to exchange it for what we need with the least possible economic loss during the whole process of exchange, and this includes the time of holding the medium of exchange from the time you acquire it until you transmit it.
Bitcoin is still in a very uncertain process. Although over the years it is proving that its qualities are not just theoretical but a reality: durable, no risk of default because it is not a debt, no risk of inflation, cheap to store and secure, difficult to confiscate, etc.
Its demand is still far from stabilising as many people are still unaware of Bitcoin’s qualities, and many others doubt that these qualities will be maintained. But these people are changing their minds. Perhaps some people will never change their minds and that would be the peak of Bitcoin’s demand, but until that point is reached, those who are joining and those who have already joined may demand more Bitcoin, although they may also sell them in panic when the price goes down.
But if in these cycles the increases in demand were greater than the decreases, in the long run demand would continue its upward climb until it reached a point of equilibrium. If we reach that point, the late entrants will probably not think too deeply, they will simply observe that it tends to preserve their purchasing power well over the long term, and that’s it.
It is quite astonishing how even hardcore bitcoiners are still stuck in the 2017 Bitcoin Cash narrative, thinking that Bitcoin needs to be currency in order to have value. Ultimately, what matters is whether Bitcoin is a good means of parking wealth. What economists usually describe as a good store of value. Being a currency or not, is of little relevance, and much less so at the current stage of discovery.
This post was originally published in spanish at juandemariana.org