Topic: The Impact of Change in Prices on Bitcoin's utility as Currency (Read 596 times)

Everyone has its own take on volatility but if you are investing for long term then you should not worry much about it. Though through this high volatility, traders would utilize it in order to gain massive profits but in the future when a cryptocurrency like Bitcoin would come to a point that the market is so huge that the price would not move sharply in the graphs which simply means that it had become stable.

Volatility can be positive as well as negative which one you would like to do buddy. We need to have strong potential bump which can push the BTC value around 2k USD in the marketplace.
So  after that Bitcoin value will be grow more with the help of huge circulation and high demand in the market in both sides.

I think that it is lack of understanding understating about the value of bitcoin that we use to think that it will be hard to pay with bitcoin when the value is high. It is just like the normal fiat currency, there are some off our coins that is high in value, but that does not mean that we do have lower denominations to make payment with them, the same way that we have lower denomination for fiat is the same way that we have lower denomination of bitcoin that we can make payment with when we want to buy thing that are low in price.

Like you said though, I also prefer this volatility like this because this is what makes us to make some profit that we are making in holding it. There is going to be some times that bitcoin will become a stable coin and we will not be able to see this volatility again.

But I do think that no matter what the price we can always use certain minimum value , the face that Bitcoins can be broken down is smaller values is infact very feasible for the time the value of Bitcoins approaches something that will be hard for people to buy , but we can always have the smaller value .
I think it is because of the high value that people actually come to buy Bitcoins since that think there is a chance that it is going to be high again .
So it's like value is one thing that is attracting investors.

Volatility is the need of present moment. Investors want to make profits first and then utilize the earned money in commerce. The idea of buying with digital currencies is not as much exciting and wanted as the idea to become rich by investing in crypto coins. Still, a big percentage of world population is unaware of bitcoin and altcoins. But this won’t remain the case for long and these assets are already being used as a medium of exchange at some places.

The impact of changes in price on bitcoin to be used as a medium of exchange cannot be overemphasized because the volatility for me, is the bane of adoption which is why people who have made genuine contribution to the discussion will want to continue to restrict its use to a store of value where people acquire it with the sole aim of making profit hoping that its value would increase which makes it have a more intrinsic value than the actual and that is going to be stumbling block to massive adoption in the marketplace.

However, it is my hope that this limitation would not be there for long as the penetration is low at the moment, it continues to grow and the growth limits the volatility.

You don't get it, do you? The more you spend bitcoin or convert it into fiat the more you are actually adding the volume in those exchanges and that's the reason why prices of bitcoin starting to plummet slowly. Imagine if for example this coming December, i know a lot of them will be converting bitcoin to fiat due to the holidays. Remember how the price starts to go down each week during that month?

Volatility isn't going to be problem if we could just establish a well founded standard price, but who will be the one to initiate that? Maybe a group of big companies? Our government? Only if we could just stuck the price at a specific short price range. Having the idea of bitcoin to be stable would cost billion of dollars to lower its volatility and avoid fluctuation. Bitcoin seen by ordinary people as an alternative investment in digital form already negates the idea of bitcoin to use as a currency to spend in daily basis.  There are already goods and services that can be paid with bitcoins, maybe that is enough for now with cryptocurrencies since it's still have a huge room for growth and improvement.

I also use cryptocurrency sometimes as mode of payment especially when transacting p2p, I just don't do it when the price is low.

The reality is that utility of bitcoin is also what we call the "adoption of mass" in bitcoin and the bigger it gets the bigger utility bitcoin has as well. It is not really directly related if you ask me because every single year bitcoin gets some sort of utility but when you look at 2017 there was even more than today which is the outliner to this occasion.

Because, in 2017 there was bitcoin in many other huge places like Microsoft started to accept for a while and steam did so, those are MILLIONS of dollars worth of bitcoin. What happened then? Well, bitcoin went down and all those companies made a huge loss which they can handle because they are huge but they removed bitcoin as well, we need to make sure they get paid in bitcoin but keep it in usd which would make them add it again and price of bitcoin could go up again.

Sorry, didn't see your comment coming my way in time

But it definitely needs to be addressed (and probably merited), what I'm doing now. Technically, I don't deny a certain correlation between these two cryptocurrencies (or dependence of the Dogecoin price on the price of Bitcoin if you please). What I want to say, or rather further expand on what you already said, is that there is a limit on how low the price of Dogecoin can go (in the mid and long term). What does it tell us?

It basically tells us that when Bitcoin crashes, the price of Dogecoin will hit a price floor, i.e. reach a definite support level which is for the most part determined by the coin's real use and application. Why is it so important? The importance is that we can see how the real-life application (even if in the gambling domain only) starts to override speculation, something we don't see with other coins (even with Bitcoin itself)


The idea of marginal utility is not applicable to money because money is an abstract concept whose value comes only through (the possibility of) spending it (now or in the future). In other words, it doesn't have value of its own (other than transactional utility), so the tenets of marginal utility cannot be applied to it. Money is only an intermediary, and it is goods and services which can be bought with it that are subject to the effects of marginal utility, not money itself

Simply put, money is beyond the scope of the law of marginal utility

In many situations, the price of Bitcoin doesn’t really matter when using it for purchases. For example, if someone coverts $100 worth of fiat to Bitcoin for a $100 purchase, then he is just spending $100 regardless of how much Bitcoin that is at the time.

I don't understand what @teosanru said as well. The term marginal utility is for satisfaction "limit" when someone consumes goods or services, right? It might not be a 100% suitable term for money or assets.

I think the choice of spending now vs. spending later is not based on diminishing satisfaction but based on future value or rational/irrational expectation.

About the volatility of Bitcoin will indeed be a problem when Bitcoin is used as a Currency. Significant price changes make people unwilling to accept payments using bitcoin. I prefer bitcoin as an investment, because buying goods using bitcoin is not very good for me, especially if the price of Bitcoin goes up. This will make doubts sellers and buyers who use bitcoin.

But there are some people who use bitcoin as a currency and pay for goods and services using bitcoin. Being a currency or just an investment depends on the person who holds it.

I don't agree with you on the micro level here, in my opinion, Bitcoin will never be widely used or accepted for transactions under $50 USD (which is classified as a micro-transaction in my book),  I only really see the potential with it in bigger transactions, and especially overseas transfers.

I agree with your charts though, they are accurate, and it's a decent assumption to make, especially with the rising transaction fees we often see with a more expensive BTC, evident during the 2017 market run.

I have to admit that I don't quite understand what you wanted to say

Regardless, to see things in their true light, we should take a correct position. More specifically, we shouldn't consider Bitcoin (as well as other cryptocurrencies) as money, or a currency (despite what their generic name suggests). That's probably why you arrive at something impossible as a conclusion or inference. Bitcoin (and other coins) is an asset, and more importantly, a speculative one at that. If you proceed from this assumption (discarding its currency aspect altogether), your conclusion should be consistent with the marginal utility basics

I partially agree with you. When it comes to utility, Dogecoin is surely one of the top 5 coins, no doubt in that. With over 122B supply in circulation and 1 DOGE transaction fees, Dogecoin is heaven for gamblers and to use for micro-payments. Even I am using DOGE as the primary coin in my under-construction gambling site.

But it's wrong to assume that Dogecoin is developed enough to be considered free from the impact of Bitcoin. When it comes to trading market, Dogecoin is just another sheep in the herd that moves in the same direction as rest of the sheep going. But there is one significant difference between the Dogecoin's chart and the charts of other altcoins and that is the pattern of 'Horizontal Parallel Channel'. If we ignore the pump of June 2017 then we will notice that the value of DOGE keep floating between the closed bracket. Even when the rest of market was crashing like hell, Dogecoin was able to maintain its minimum value which is around 30 sats. This may imply that real utility of Doge do have some impact on its trading value.

Chart:

In real life, most people won't shop using Bitcoin regardless if its price is high or low. It is only in theory that when Bitcoin goes down they will start using them to buy stuff in shops. In reality, one would not buy something and pay 0.001 BTC for example when a few days or a week ago that exact same amount would have given him 3 more. If Bitcoin is going down, would you buy a pair of shoes at a certain price when just yesterday you could have bought 2 pairs at the same price?

yes I agree with op when the price of bitcoin rises high then people will save it and won't use bitcoin for shopping because they think bitcoin can make more money if it is saved and also they can use fiat for shopping. but if the price of bitcoin goes down or is stable they will start using bitcoin to shop. but actually in my opinion the price of bitcoin can increase as more people use bitcoin for payment tools.

My good friend you have made a good analysis of how people react to there usage of Bitcoin any time the market value of Bitcoin is speculated to increase or is expected that its market value is expected to decline.
The bottom line is that most people that holders of Bitcoin are at all time expecting profit from the amount of Bitcoin they are holding and that is the main reason they behave that way.

i totally agree on the last part on the op  . if btc price is low, many people will use it for paying because its not that valueable  at all  but if the value is high , people will think twice  and will end up hodling thier coins because its too valueable to spend it or waste it when you can earn more thru it if you will treat it as an investment asset . the impact is big if btc price rise and fall but i still prefer it to be a volatile  so that we can use it for both purposes occasionally .

I think this can even be explained on micro level using simple Marginal Utility basics. Bitcoin isn't even viable at MicroEconomic level because it violates the basic assumption of Marginal Utility of Money being constant as price increase would increase people's marginal utility in money and they would tend to hold it. Moreover with two economic variables of marginal utility in the MU therom I would say that it would cease to exist. People won't get any satisfaction from consumption of utility at all if the utility derived from not spending that money is higher because basic assumption is that everyone is a Rational consumer.

It's is undoubtedly the reality why it's harder for bitcoin to be accepted by the public, even the government. Due to changes in price, bitcoin are becoming more of an investment. The public, especially the market wouldn't want to always monitor it's value just to know how much are they going to price their product. For businesses, it's uncertain for them to know if they will gain profit or will lose because of bitcoin's volatility, if ever it will be adopted. Volatility can be the strength of bitcoin, but can also be it's weakness at some point.

As adoption didn't happen fully yet then there barely no ways to use it as payment, those merchantscan attract some buyers who hold bitcoin. But some still prefers to hold and wait till the supplies are all mined and supplies became limited. Some might only buying in some store just to try to do transactions in real life like what I'm doing in paying bills but when there is chance to buy BTC at lower price I still take that as an advantage as we don't still know what price it can be in the future higher or lower.

It is because of bitcoin volatility that we still find all these differences and because many of us still pair it to usd as fiat. I think that when bitcoin becomes currency, all these issues will not be there, I mean global currency, but if bitcoin has not become global currency, it may be difficult for people to actually use it alone without paring it with any fiat.

This is why we have to hope that one day, the world's leader will accept it as a single currency so that when people are spending bitcoin, they don’t have to base its value on fiat, but for now, like satoshi said, for the use of the coin will pay even if the volatility as cryptocurrency, we just have to continue suing it that way till the volatility of the coin has decrease and the time that government will fully declare it as global currency.

I dont really expect this to happen in this era.
Perhaps when the bitcoin number to be mined is almost depleted.
For now, acquiring it has many options and most of the investors is by buying it.
But not for usage. As you said it is just to keep it or a store of value. Some do use it to avoid taxation and some just prefer it as the new currency which is a small percentage of all those three.

The volatility seems to be the wall of it. If the price keep on jumping to a different number, it will be difficult for merchants to come in.

It is good that you brought up the example of Dogecoin

So why can Dogecoin be interesting for the purposes of this thread? Well, it may be not for the currency aspect of it as such (as no one is using doges as a currency, let's be honest here), but for an aspect that still has nothing to do with sheer speculation, and that seems to be quite resonating with the idea presented here. What I mean to say is that Dogecoin is probably in the list of top 10 coins that have most real-life use and application if not just the most used cryptocurrency in this regard (however paradoxical and counterintuitive it may sound)

This coin is probably the best coin for gambling, and that is definitely not speculation. The implication is that such use will prop up its value no matter where the whole cryptocurrency market is going, especially when it's going down. Indeed, it is not free from the overwhelming impact that Bitcoin's price dynamic has over all other cryptocurrencies out there, but it still should be less pronounced. And what's more important here, the effect of this impact, or rather lack thereof, can be easily assessed numerically, for example, by using correlation metrics

I think it's not so much that Bitcoin's potential value makes people not spend, to be honest.

I think the mindset of the person when they enter is what is important. Speculators and investors come in and will not likely spend it on a microlevel. And the guys who come in to participate in the economy, well, they do.

You see this all the time. The regulars who meet up and discuss Bitcoin at a cafe accepting BTC. The freelancers who accept and of course spend in BTC (like me hey;) ). And then the educators who really just have as much BTC as they have and use it as much as they can.

Price doesn't really affect how these guys use. Yes, it might sway my timing, by a few days, but in the end I have to sell when I have to, get paid when I do.

Fiat remains the choice of money for a lot of Bitcoin owners. I am also one of them in a way. I don't want to spend Bitcoin because I know that the value will grow in the long term. But since fiat is nothing but a deflating currency, I don't mind spending them right away. I don't even want to save them in banks because they are losing value while they are sleeping. In contrast, Bitcoin is increasing in value while sleeping.

I specifically cleared in the topic that I am talking about the transactions done for payment purposes i.e. where Bitcoin is used to pay for goods and services.
Else, it is natural that the number of general transactions always increase with the increase in price. So is the fees.


Say that again! DOGE and LTC are stable! I have a chart for you comparing the percentage change in the value of Bitcoin, Litcoin and Dogecoin.
Blue is for Bitcoin
Orange is for Litecoin
Yellow is for Dogecoin



You can see from the graph above that Litecoin is most volatile among three in last 6 months. If I consider graph from 2018 then Doge will also become as volatile as Litecoin.

A good discussion about the Bitcoin issue, I think Bitcoin could be used as a currency because it's a value in the digital market but the issue is the acceptability, I think it's not about the value. it's all about the acceptability when it doesn't have any potential of this purpose then it might be used another way, That's why I think Bitcoin is more than a currency, It's like an investment for me, This is the real scenario that people prefer to hold Bitcoin rather than spending of shopping purpose, In my opinion, If people will get enough space for spending Bitcoin then they definitely use this opportunity but due to huge manipulation Bitcoin 's acceptability is underrated.

Most of the time users prefer to invest on bitcoin and other cryptocurrencies. When it comes to usage as currency people think it in the opposite manner. If a product is $100, but in terms of bitcoin based on the fluctuation it'll be 0.01 bitcoin or 0.011 btc and counts. Everyone won't wish to have different price for the same product with time variations. People who want something unique other than traditional fiat will buy and spend it while majority of the people are comfortable with fiat.

Yes, because bitcoin market is a speculator's heaven! However, if you have seen the past trends, you must have noticed that whenever we enter bull's regime, the number of transactions increase. Because speculators rush to book their profit rather than using it as a payment for goods and services!


Practically resonates the same speculative behavior! If I am optimistic about bitcoin will touch 12k USD next month, why would I spend it to buy groceries? Rather I will hold it for now so that I can fetch the profit in near future!

I don't see such kind of behavioral trend as an issue because speculation is what keeping this market alive and dynamic. But we will definitely see more use of bitcoin as a payment method only if the price stabilizes!

but people tend to spend more as the price rises. doesn't that contradict your theory? it doesn't seem like everyone is waiting for some far-off price plateau. people seem to treat bitcoin like any other speculative investment in commodities or real estate---they hold until the price rises and then they sell. it's pure speculation.

we don't think of real estate investments in terms of deflation, do we?

Many insurance and investments companies in my country still not consider crypto good for long term as a retirement fund due to it's volatility. It belongs to as speculative investments that can acquire much better if you already have necessary ways to improve your cash flow or already have passive income from other streams of investment like forex or stock. It will be better for chart 1 as the number of transaction increase the price should also be.

I think if we view Bitcoin as a currency, change in price shouldn't affect the number of transactions (chart #1) that much because people will transact regardless of the price. For example, if I'm hungry, I'll buy food. It doesn't matter whether the currency that I use appreciates or depreciates. Also, don't forget about the liquidity preference theory in chart #2.

This kind of price vs. volume chart, usually used in the trading, or Bitcoin as a speculative asset.

So.. it's interesting to see whether the price movement is unaffected by volume or not, so you can make a case about Bitcoin as a currency or a speculative asset. This needs time series analysis though.

That's true! The thing is Bitcoin's supply is currently hold by very less number of people, making it highly volatile. As soon as we will reach a point where supply is distributed among much more holders, prices will get stabilize with the daily fluctuation of just 0.05-0.1% and Bitcoin can be more widely used as currency.
However, I fear that the large number of transactions but the limited block size may act as constraint at that point.

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True that! Bitcoin was never visioned to be used as mainstream currency. It was designed as an alternative to mainstream currency with the additional features like privacy.
Here's what Satoshi have to say about it:

Yup, economics support this. Generally speaking, inflation spurs spending while deflation discourages it. This is also why fiat is inflationary by design.

This might be a tough pill to swallow to some people, especially those who believe that Bitcoin will one day destroy banks and replace fiat, but at the end of the day most people are only really going to use it where it's most convienient; cross-border payments, online transfers, etc. It doesn't necessarily have to be a bad thing though, because anyone can still use it for what they want to use it for.

Exactly, This is not limited to yourself but most of us feels the same way and that's the reason bitcoin cannot be used as currency because even when the value is at peak we don't risk to use it for transactions because we know about the volatility and cannot afford to lose if value dump, when we being in this industry from long time are hesitant to use it then how can we expect new comes or those with less knowledge about bitcoin into using bitcoin as currency for their daily uses.

Volatility will always be a big issue not just with Bitcoin actually but generally with cryptocurrency except for the stablecoins. Many are seeing that this is the biggest hindrance for the future growth of Bitcoin as a currency, making it as more of a store of value in function. Though I have a concern on that: How sure are we that if Bitcoin can stabilize its volatility that people will really be flocking into Bitcoin, adopt it and use it everybody? Is there really a guarantee for that or are we not just making another speculation here?

Generally speaking, volatility has had been the biggest reason why many people bought Bitcoin in the first place. They don't care much about the technology behind Bitcoin or what makes Bitcoin tick in the first place. Speculations was the biggest reason why the ATH in 2017 and can be the same reason why there will be one in 2020. This why volatility can be a two-edged sword, a great advantage and a big disadvantage at the same time.

Maybe it is time to ask ourselves this very important question: How critical is Bitcoin or owning a Bitcoin while living in our modern and hi-tech world? Is Bitcoin providing us something that our lives would be radically different without it? If we are talking about payments or generally currency, is Bitcoin really irreplaceable that making transactions can be so hard without Bitcoin? The honest answers to these questions determine if there is really a big future ahead for this cryptocurrency...

This is why I think an alt like Doge or litecoin will get used for payment purposes. They can both scale because the blocks are found so quickly, and their value is pretty stable in dollar amounts.

for macro conditions the use of bitcoin will enter a narrow space only for investment and naturally will form an exclusive structure, but on the other hand, many people will move inclusive, but for reasons of the middle economic cycle, will be used more as a currency. There will be a balanced point where prices will be higher because of the influence of demand, and currency utilities will also be more crowded in use with smaller nominal denominations.

Yes I definitely understand the hesitancy to use it as currency. Haven't experienced being on the seller side but when we have bear markets, we feel bad having to use it to buy less goods. When it's on a rally, we feel that we should be doing something else with it. Me and other users I personally know just end up watching the price, converting some to fiat when the price is good and just using those for purchases instead.

It's hard to speak for other people but I spend only when I must and the higher the price the more I'm ready to spend some because I know that my coins will buy me more stuff.
If the average holder thinks like me all he wants is to have more BTC but sometimes a need to buy something comes up and he looks at the price and thinks that new computer is going to cost him 0.1 BTC but we are in a bear market, so maybe it's better to wait for a bounce back. Finally one day he sees a big green candle and Bitcoin is worth more than it was for the last 2 months. Maybe it's a good time to finally buy that computer. Now it's worth only 0.08 BTC so he gets to hold another 0.02. What if one day that 0.2 will buy him a new computer?

i think very few people immediately rebuy the coins they spend. the data bitpay has released supports the idea that people spend bitcoin as a profit-taking measure after price rises. in other words, even the spenders are speculators!

There can be cases when it would be smarter to buy BTC and pay with it instead of using fiat. This happens when there are huge transactions fees for fiat methods, when you don't trust payment methods to deliver the payment, when itransaction is impossible due to regulations.


The whole premise of Bitcoin is that it is a holdable currency, unlike fiat. Fiat is constantly losing value, and when you store it in bank there's a risk your money will be taken away (though this risk is quite low for general population). So, people who will use Bitcoin as a currency would likely be the ones who also use it as a store of value.

Simply, I think it can be used for both, that is; as an investment and currency depending on the person. I can invest in bitcoin by buying and hodling for it to appreciate and then currency, also as exchange for further coins or money as the case maybe.

Price volatility is a short-term problem and volatility may be reduced once the market capacity reaches trillions of dollars. It's a matter of time.
About the acceptance of merchants, merchants can indirectly accept Bitcoin payments "using any third party."
the third party accepts payments in BTC and sends money in cash to merchants (Increasing BTC spending and reducing volatility risks.)

These third parties could use Bitcoin as an investment.

I feel that you showed how changes in price may affect the use of Bitcoin as a currency, but not the utility. Although, I guess you could argue that they are ultimately the same.


I think the effects of inflation and deflation on spending are well-known. It is certainly the case that when a currency starts losing value, people save less and spend more quickly. In the case of hyper-inflation, people tend to spend any money the get immediately, and that behavior causes the value of the money to drop even more quickly, due to the increased velocity.

Likewise, deflation causes the opposite to happen. When a currency starts gaining value, people tend to save more and spend more slowly. In the case of hyper-deflation, people tend to save as much as they can, and that behavior causes the value of the money to rise even more quickly due to the lower velocity.

I consider Bitcoin to be hyper-deflationary currently, and I believe that state will come to an end eventually. Once a saturation point is reached and the price levels out over the long term, people who were previously saving will start spending.

Since TP has very well explained the second part of your question in the post above this, I will concentrate on the first part of your question.
Not everyone is HODLer and intent to hold Bitcoin forever. Try asking people and you will find that around 20-30% traders are only doing day-trading. Most of the people like me keep buying and selling Bitcoins according to change in the market price. I sometimes use Bitcoin to renew hosting or buy domains etc. Namecheap is one popular provider that accept crypto payments. Hence from my own experience I can tell you that when I expect Bitcoin prices to remain constant or fall in near future, I don't hesitate to spend it for utilities and assume it as cash equivalent. But when the prices are rising and are expected to rise further, I restrict myself from spending and instead accumulate it.

Yeah, but why even bother doing that, especially if what you spent bitcoin on could be bought with fiat instead?  That never made any sense to me, the spending of bitcoin for the sake of spending bitcoin. 

The thing is that in order to use bitcoin as a currency, first you have to acquire it.  For the typical person that means going out of their way to buy it on an exchange with a bank account.  It creates a taxable event, too, which requires the buyer to keep track of the purchase price and the price when it was spent.  It's an accounting nightmare if you want to be compliant with the law.  Who in their right mind would want to do any of that when they could just spend their fiat instead? 

The price volatility is secondary to all of the above issues, though it is a real concern and one which keeps bitcoin owners holding their bitcoin instead of spending it.  These reasons are why I rarely ever spend bitcoin on something unless I happen to have bitcoin and don't have fiat.  The last time I did was maybe last year.

You're saying that community expects some price changes, but that's a very bold assumption. In the long run everyone here expects Bitcoin to grow, in the short term no one knows and doesn't care much. You're also forgetting that whenever people buy stuff with Bitcoin, they can immediately buyback the coins with fiat. There can be situations when this is optimal, for example to avoid large fees on fiat transactions.

One of the biggest on-going debate about Bitcoin is whether it can be used as currency or is it just a sort of investment? On the micro level, Bitcoin can surely be used as a currency. Since it has value, it can easily solve the problem of double-coincidence of wants by becoming the medium of transaction. But when we consider it at macro level, the story doesn't remain the same. There are several factors come into play when we consider the whole community, the prominent of which is Change in Prices.

The main reason why people won't use Bitcoin as currency is because its value (I'm not talking about fiat value but the real value) in the eyes of investors keep changing radically. Hence making sellers hesitant to accept Bitcoin as payment and buyers hesitant to spend Bitcoin for payment.

I have created following graph to show the impact of Change in Prices on the people's tendency to spend Bitcoin as payments:

CHART #1



Explanation: The above graph assumes that x number of Transactions (for payment purposes) take place when the price of Bitcoin is y. Now two things can happen, either the price of Bitcoin can increase or the price of Bitcoin can decrease. Both  cases can impact the normal behavior of holder. In the case of price rise i.e. increase from y to 2y, bitcoin holder will become optimistic that prices will increase further, this will lead to fall in number of transactions where bitcoin is used for payment purposes from x to x/2. Similarly, in case of price fall from y to y/2, holder may postpone his expenditure or may use other form of payments like general fiat currency for expenditure purposes in the hope that prices of Bitcoin will rise again. Therefore, the number of bitcoin-payments will decrease to x/2.

Overall Outcome: Higher the change in prices, lesser will the use of Bitcoin for payment purpose.

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When we talk about Bitcoin prices, another topic comes to play i.e. Speculation! The above chart clearly shows the impact of current prices on Bitcoin's utility as currency but what about the future price? We all know that Bitcoin community loves to speculate. Hence, the speculation also have considerable impact upon the bitcoin's utility as currency. This brings us to our second graph:

CHART #2


Explanation: Unlike the chart #1, future expected price rather have two-ways impact on the number of times Bitcoin is used for payment purposes. Suppose Bitcoin community is expecting the increase in price of bitcoin in coming months. In such case, rather than spending bitcoins for payment purposes, people at large will hold their bitcoins. In other words, if the price increases from y to 2y, the transactions will fall from x to x/2 (it could be anything but I took 50% fall for the sake of simplicity).  Vice-versa, in case if people are expecting the fall in the prices of bitcoin, they may rush to spend bitcoins for utilities. This may pump the number of transactions from x to 2x.

Overall Outcome: If the future expected price of Bitcoin is higher, lower will be the use of Bitcoin for payment purpose. On the contrary, lower the future expected price, higher will be the use of Bitcoin for payment purpose.