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by thatcherclay
4577 days ago
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Yea, I agree with you. I am trying to make a different point though - there is reserve demand in both dollars and bitcoin, but if the bulk of the pricing set for bitcoin is by transactions founded in speculation (ie, not tied to a physical good or service), then it would seem there is a very limited ability to increase value in the system (aside from new users coming into the market). A currency like USD is different - you can easily and reliably exchange USD for goods and services which increase in value independent of the currency instrument itself. That, and the fact that you can amplify demand by introducing credit, creates a different dynamic, which is why I think the ratio of liquidity created by "speculative" investments versus transactions tied to something external is an interesting indicator. |
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Here's the logical flaw. I don't blame you, modern economics are witchcraft and many people are being lied to all the time.
Price of Bitcoin, or Dollar, or Euro does not and never will depend on some transactions out there. Easy proof: I can shuffle coins with 5 of my friends with an incredible speed and it won't matter for you or anyone else. Why? Because transactions are effect, not cause of the value.
Why transaction happens in the first place? Why do you give $2K for a macbook and owner of a macbook gives you a macbook in return? Money by itself is pretty worthless. "You must pay taxes with it" is not a reason. You are taxed with money only because it already has value established via other means.
So here we go: money gives you freedom to buy stuff any time you want. Just by sitting in your account for a day, or a year, or 10 years, it always provides you with ability to buy things any moment. And it's equally true for everyone else in the economy: you have this freedom to buy stuff only because other people believe in the same freedom to buy stuff. That's why they accept money from you in exchange for their product. Everyone wants to have some cash to use it when they like. That's the only value and function of cash. The more hands want to believe in this money and hold it, the bigger liquidity of it. If the supply is fixed, it means the price must grow as number of holders grows.
Whether you actually make these transactions is irrelevant. Of course, if no one is making transactions, then there's probably little value in money, but that's not because of transactions. If no one is making transactions it's either money is hugely valuable like a long-term "store of wealth" (e.g. gold), or because it's shitty money that no one wants (e.g. soviet ruble in 2013). And on contrary, if everyone is making transactions, it's either because money is useful and liquid (e.g. dollar bills or bitcoin), or it's depreciating very quickly (e.g. argentinian peso). In all of these cases transactions are effect of value, not the cause.
Strictly speaking, every holder of money is a speculator. Whether he sold his product, other money, or his kidney is irrelevant. If he is willing to hold this money versus some other money or other forms of property, that's his speculation. That means this money is more useful for him than else at this moment.
Maybe this quote from Murray Rothbard will be helpful (his books are really-really eye-opening, highly recommend): http://blog.oleganza.com/post/43378777734/on-circulation-of-...