[ph0rcyas]

Bubble or no, from a personal perspective I will not use bitcoin as a currency to exchange goods - things like purchasing items or paying salaries. Bitcoin's value is just too volatile, why would I pay someone a certain amount in bitcoins, when it'll probably rise up to 10 times the current value in a few weeks? But as a medium for investment, like buying stocks, bitcoin does provide a novel and alluring option.

[eurleif]

>why would I pay someone a certain amount in bitcoins, when it'll probably rise up to 10 times the current value in a few weeks?

Why would you pay someone a certain amount in USD, when you could buy Bitcoins instead and they would probably rise to 10 times the current value in a few weeks?

[epaga]

This is the best counterargument to the tired old "Bitcoin is deflationary" I have ever read, and you did it in a single sentence. Thanks!

[brazzy]

Except it is not a counterargument to that at all. If anything it reinforces that argument by treating Bitcoin as an asset rather than a currency.

[davidjohnstone]

I'm no economist, but isn't this blurring the lines between what an asset is and what a currency is? Isn't a currency fundamentally a perfectly liquid asset?

As for previous commenters, the fact that the value of a Bitcoin might be worth ten times more (or less) what it is now in a few weeks has more to do with its volatility than its depreciative nature.

Why would you ever risk money by lending it when you could just "hide it under your mattress" and make money? It's appealing to those who have the option to do that, but I believe it's highly suboptimal from an economics point of view.

The funny thing is that even though it's bad economically, its deflationary nature is good for the uptake of the currency, because, provided more people start using it, those who are already using it become richer (which is why some accuse it of being a pyramid scheme).

On the other hand, its mid-term value depends on why people are buying into it now. At the moment, I see four groups of people: 1) the idealists who believe it's simply a more perfect form of currency that can't be corrupted by governments et al; 2) the technologists who think it's a neat idea; 3) the speculators who think it's going to go up because it's going up; 4) the users who find it more useful than regular currency (like those on Silk Road). I can't help but think that the speculators are the biggest group at the moment. But I might be wrong.

[endersshadow]

To answer your question, no, a currency is not fundamentally a perfectly liquid asset. "Currency" is a really, really big word, but at its heart, currency is any medium of exchange. There are myriad microcurrencies that are out on the market now, of which Bitcoin is just one.

However, the difference is that Bitcoin has been primarily commoditized. People aren't using Bitcoin as a medium of exchange, by and large. They're trading dollars for Bitcoins in a hope to get more dollars back in the future. That's an investment in an asset, not a currency trade.

Now, to confuse things further, there is a FOREX market which allows you to (if you so chose) speculate on currency. By and large, these currencies fluctuate within the FOREX based on their respective purchasing power at that time (there's a lot that goes into this--I'm simplifying). The thing that makes the FOREX unique is that you can trade any currency with any currency in it. It's not a commodity market, wherein you need to sell your commodity to trade for another one.

Bitcoin wants to be a currency, but is a commodity. Until it becomes a viable (viable in the sense of macro-level use and acceptance) medium of exchange, it will only be a commodity. In one transaction, anything can look like a currency, and anything can look like an asset. But when you throw those words around, realize that at a mirco level, they're nigh meaningless.

[brazzy]

> Isn't a currency fundamentally a perfectly liquid asset?

I'd say the defining property of a currency is that it's in wide use as a medium of exchange.

> its deflationary nature is good for the uptake of the currency, because, provided more people start using it

Except that the deflationary nature makes people hoard it, not use it.

For Bitcoin to succeed in the long run, the most important influence has to come from normal businesses accepting it as payment, not from speculators attracted by its skyrocketing market price.

[vrotaru]

You do not "make" money, when you hide them under a mattress.

Assuming a stable money supply, when all is said and done, you own the same fraction of total purchasing power at the end that period as you had when it started.

You do not get richer, if that's what you mean by making money. You just keep what you had.

I know, how unfair!

[davidjohnstone]

But you do make money! When the value of Bitcoin goes up, your wealth increases because the entire Bitcoin economy is worth more, even though your fraction of it remains constant.

Or, to look at it another way, imagine that Bitcoin was the only currency in the world and there were only one million people who each owned 20 Bitcoins (maybe they're communists who have just started using money). Now, give it a few years and the population has doubled so that the average person has 10 Bitcoins. Is the person who still has 20 coins richer than he was at the start? I say yes, because, assuming that people are just as productive, the entire economy has doubled in size in an absolute sense (it can produce twice as much), so those 20 Bitcoins can buy twice as much as when there were only one million people.

(As a less important point, as Bitcoins are irretrievably lost, the fraction of Bitcoins that a person owns of the "real" Bitcoin economy grows larger. And I don't see why this deflationary pressure is different to the deflationary pressure caused by somebody new getting into the Bitcoin economy.)

[rubyrescue]

That's the best one sentence summary of why it's deflationary, actually.

[epaga]

It is deflationary, of course. What I think the sentence shows is that this is not that huge of a problem. You still will spend your dollars, obviously, even though there is a deflationary currency out there that you COULD make a profit on, because at some point you want or need to spend your dollars. The same logic would apply within the realm of BTC.

[brazzy]

> why would I pay someone a certain amount in bitcoins, when it'll probably rise up to 10 times the current value in a few weeks?

Thanks for being a living example of the chilling effects of deflation.

[yebyen]

There is an easy answer. Because you need it, and you've invested in Bitcoin (to the extent where you can't get what you wanted to buy without selling some bitcoins.)

Otherwise, with the trend as it is, I think you're right! Hoard your bitcoins and don't cash them in until you've spent every US dollar and don't have any more.

How many people have that kind of confidence that the bubble will continue to grow?

Will you bet your mortgage payment on it? I have kept a meager bitcoin savings, but every time I cash out I regret it, and I am getting used to that feeling. And as time goes on, that meager savings begins to look more and more like a full month's expenses in the bank.

Afraid that some day soon I will regret not cashing out when the price of BTC was so high. Oh well, knock on wood that day is not today.