Medium of Exchange vs Store of Value - and effect on BTC worth - page 5.

deisik

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Quote from: Shneebly on December 06, 2013, 03:55:51 AM

I disagree with your premise. Bitcoin makes a fantastic medium of exchange (best in human history), and due to the predictability and certainty of mining new Bitcoins (at predetermined rates), and the lack of monetary inflation, it will also make a great store of value.

How could it possibly be "a fantastic medium of exchange" with that type of volatility? For a medium of exchange, it is of utmost importance beyond anything else that its exchange rate to a basket of other main currencies be as stable as ever possible. If you are curious, this stability is predetermined by the size of the economy a currency encompasses...

Ibian

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Bitcoin is a store of value, currency and a transfer protocol. That makes it more valuable than any of gold, fiat or paypal.

The upper bound is their combined value. More realistically it will take a bite out of each of them. $300k is my personal realistic goal, with 1 million being the "wouldn't it be nice if..." target.

invisiblehand

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Quote from: npl on November 30, 2013, 09:08:45 AM

Is Bitcoin primarily a medium of exchange or a store of value? No financial instrument can be both things equally well. Despite what some Bitcoin proponents believe, specialization in one direction is inevitable (many people who seem to think it can somehow be both are the same ones advocating 'buy and hold forever'...).

The BTC paradox is that when it was created, it was intended to become primarily a medium of exchange (so Satoshi claimed) but the manner in which the protocol was devised makes it far more suited to be a store of value.

If it does become a significant store of value what might it be worth? Obviously we still cannot say with any certainty, but to determine the upper limit assume Bitcoin somehow fully replaced gold. Then the price of 1 BTC would roughly equal $330,000 (5.6 billion ounces*1250/21,000,000). Of course that is the upper limit and not very realistic.

I like it more as a store of value. I'll spend USD. Gresham's Law.

deisik

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Quote from: npl on November 30, 2013, 09:08:45 AM

If it does become a significant store of value what might it be worth? Obviously we still cannot say with any certainty, but to determine the upper limit assume Bitcoin somehow fully replaced gold. Then the price of 1 BTC would roughly equal $330,000 (5.6 billion ounces*1250/21,000,000). Of course that is the upper limit and not very realistic.

Gold is no longer a means of exchange and has not been so for many decades already, so it is not correct to make such assumptions because Bitcoin is also used to some extent as a means of exchange (unlike gold). If we take that such reasoning has some value in it, that would in fact give us the lower limit for Bitcoin price...

Ibian

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It's both. Think electronic gold coins.

Misesian

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The function of currency as a store of value is derived from its status as a means of exchange, acceptance of bitcoin as a means of exchange will only enhance it's function as a store of value, this has been the same historically with other means of exchange like gold and silver. For something to be universally accepted as a means of exchange however it must contain properties that give it an advantage as a means of exchange, for gold this was limited supply and high mining costs, homogeneous and divisible, every unit is the same as every other and it can be blended or formed in any quantity, it's status as a luxury good meant it was sought by humans. Bitcoin has many advantages as a medium of exchange as well, limited supply, infinite divisibility, homogenous and low transaction costs. The problem is governments have forced fiat money onto us by requiring we pay taxes in fiat money this has prevented market forces from picking a dominant currency which could be anything, hopefully bitcoin for those invested in it, the reason why many are choosing bitcoin as a store of value is because people have lost faith in fiat money and believe bitcoin is a safe haven that will protect them from inflation, or they are just simply speculating.

npl

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Quote from: BitchicksHusband on December 05, 2013, 04:51:42 PM

The OP is basically saying, "Gold CAN'T be both a store of value and a medium of exchange."

Well, yeah, it was. For millennia.

As bitcoin goes up in price it will get far more stable. Once it gets very stable, purchasing with it will become very popular. It will still probably beat inflation at that point, so it will still be better than your fiat for store of value as well.

while the historical use of gold as both isn't quite as clear cut as you are making it out to be (for much of that time gold backed instruments were mediums of exchange, rather than gold itself), it doesn't really matter because our present economic situation is quite different than 1000 BC Assyria or even 1840's England.

npl

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Quote from: Shneebly on December 06, 2013, 03:55:51 AM

Quote from: npl on November 30, 2013, 09:08:45 AM

Is Bitcoin primarily a medium of exchange or a store of value? No financial instrument can be both things equally well. Despite what some Bitcoin proponents believe, specialization in one direction is inevitable (many people who seem to think it can somehow be both are the same ones advocating 'buy and hold forever'...).

I disagree with your premise. Bitcoin makes a fantastic medium of exchange (best in human history), and due to the predictability and certainty of mining new Bitcoins (at predetermined rates), and the lack of monetary inflation, it will also make a great store of value.

Please explain why one cannot both save and spend in Bitcoin?

For a modern capitalist economy to function properly the following must hold true, in the long run:

A. currency in actual circulation (i.e. circulating paper money) must be expected to decline in terms of purchasing power in the long run. Otherwise there is no incentive to turn to stores of values (which, as explained below leads to decreased spending and no new investments = economy grinding to a halt).

assuming A is fulfilled, and people turn to stores of value, then:

B. commodity stores of value (gold) must expected, in the long run, to not outperform investment vehicles that provide a return on value (i.e. growth from anticipated real price increase plus dividends). When people no longer believe that to be the case (e.g. because of strong economic or political turmoil) they increasingly turn to gold, thus putting further pressure on the economy (because not enough money being directed to investment).

bottom line: BTC can be both store of value and medium of exchange - but only in the context of a sustained strong economic downturn (or even collapse) of a capitalist economic system. If this is desirable or not - I leave to you to decide for yourself.

Abdussamad

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Quote from: Shneebly on December 06, 2013, 03:55:51 AM

Quote from: npl on November 30, 2013, 09:08:45 AM

Is Bitcoin primarily a medium of exchange or a store of value? No financial instrument can be both things equally well. Despite what some Bitcoin proponents believe, specialization in one direction is inevitable (many people who seem to think it can somehow be both are the same ones advocating 'buy and hold forever'...).

I disagree with your premise. Bitcoin makes a fantastic medium of exchange (best in human history), and due to the predictability and certainty of mining new Bitcoins (at predetermined rates), and the lack of monetary inflation, it will also make a great store of value.

Please explain why one cannot both save and spend in Bitcoin?

Price is too volatile for it to be used as a medium of exchange. In my experience ordinary people only use bitcoin as a medium of exchange when they have no other alternative. For example because other payment systems are not as well developed in that part of the planet.

Bitcoin's deflationary nature discourages spending and encourages saving making it more suitable as a store of value.

So, yes, it can be used as both and some people will use it as both but it will primarily be used as a store of value.

Shneebly

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Quote from: npl on November 30, 2013, 09:08:45 AM

Is Bitcoin primarily a medium of exchange or a store of value? No financial instrument can be both things equally well. Despite what some Bitcoin proponents believe, specialization in one direction is inevitable (many people who seem to think it can somehow be both are the same ones advocating 'buy and hold forever'...).

I disagree with your premise. Bitcoin makes a fantastic medium of exchange (best in human history), and due to the predictability and certainty of mining new Bitcoins (at predetermined rates), and the lack of monetary inflation, it will also make a great store of value.

Please explain why one cannot both save and spend in Bitcoin?

Pente

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I see it as three synergistic things:

1) A frictionless means of exchange.
2) A better way of storing and transporting wealth.
3) An investment in the bitcoin network.

I have also seen videos on it's use as programmable money. I guess I am to old to see the value in that, but I can take it on faith that their will be additional uses for bitcoin. The internet has given me things of great value that I could never have imagined.

I am so grateful to be alive at this time in history.

BitchicksHusband

sr. member

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The OP is basically saying, "Gold CAN'T be both a store of value and a medium of exchange."

Well, yeah, it was. For millennia.

As bitcoin goes up in price it will get far more stable. Once it gets very stable, purchasing with it will become very popular. It will still probably beat inflation at that point, so it will still be better than your fiat for store of value as well.

kdrop22

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It is both a currency and store of value.
If you run through the numbers of calculating
a) Bitcoin's market cap provided it captures 10% of internet transactions
b) Bitcoin's market cap provided it captures 10% of gold market cap.
You will find that valuation for B) is about 10 times greater than A).
According to my calculations Item B), 10% of gold would put it around 30,000$.
That is the potential, but you need to figure in the risk as well.

npl

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Activity: 158

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Is Bitcoin primarily a medium of exchange or a store of value? No financial instrument can be both things equally well. Despite what some Bitcoin proponents believe, specialization in one direction is inevitable (many people who seem to think it can somehow be both are the same ones advocating 'buy and hold forever'...).

The BTC paradox is that when it was created, it was intended to become primarily a medium of exchange (so Satoshi claimed) but the manner in which the protocol was devised makes it far more suited to be a store of value.

If it does become a significant store of value what might it be worth? Obviously we still cannot say with any certainty, but to determine the upper limit assume Bitcoin somehow fully replaced gold. Then the price of 1 BTC would roughly equal $330,000 (5.6 billion ounces*1250/21,000,000). Of course that is the upper limit and not very realistic.

Topic: Medium of Exchange vs Store of Value - and effect on BTC worth - page 5. (Read 4812 times)