Bitcoin Forum

There is a common misleading concept: Money's value comes from its transaction demand, without transaction demand money worth nothing

The reality is, throughout human history, money's value has never come from transaction demand, be it grain, gold, or fiat money. It comes mainly from the property that it can be trusted to hold value in a relatively long time, and secondly it can be accepted widely

No matter how much the transaction demand is, if a money is quickly losing its value every day, it will be refused in transaction. This is also the first mandate of FED, e.g. low inflation rate

Whether a person trust certain kind of payment medium depends on his financial knowledge. Some people would like to accept Euro when they are in US, because they often travel to Europe and know that Euro is accepted there. Managers of large enterprises would accept stocks and options as payment medium because they know they can liquidate them at exchanges for fiat money any time

From this point of view, as long as people knows there is an easy and quick way to exchange their bitcoin for fiat money, then they would accept them the same way as they accept foreign currency, stocks or options

Bitcoin is not used a lot in transaction. Its value ultimately comes from people's trust of its limited total supply, thus continuous purchase of bitcoin to store value. It is a superior form of store of value given you have enough IT skill

For traditional money, you need merchant acceptance to be useful, so it never goes beyond boarder of a country. But bitcoin is more universal form of money, you don't really need merchants to accept the payment, you can easily exchange to what ever currency they accept. It is amazing that you can exchange it to any currency on localbitcoins, no other currency in the world have this kind of worldwide exchangeability

Of course with the help of payment processors, merchant will also accept bitcoin. But since most of them just convert to fiat money behind the scene, it is still exchanges that matters most. And who is buying on exchanges? Those people who purchase bitcoin for long term saving or speculation, and international remittance sometimes

I find it hilarious when some people would get pissed off at the fact that you wouldn't use your Bitcoin frequently for transactions and just hoard. It's like they want to tell you what to do your money, when the fundamental point of Bitcoin is precisely this fredoom to do whatever you want.

Nonetheless I still believe in a worldwide accepted Bitcoin that success to scale to global levels, we should aim for that in any case.

I thought that hoarding = less monetary supply = more value. Doesn't hoarding promote bitcoin's value then?

Any rational person would first spend fiat money which lose its value constantly, they would get rid of fiat money as quick as possible in order to not be hurt by inflation, while they will hold bitcoin as long as possible in order to gain from deflation

If you have 10 bitcoin and 4K dollar, which one do you spend first?

Hoarding works to increase value untill it reaches the point where everyone sells. But Without buying and selling products mass adoption cant happen due to no where to spend them.

This is a very good argument. Initially I thought transactions create the value, but trust is much more important.

Interesting, OP, and I like your considered arguments very much.  I do believe this is like precious metals, which no one uses in transactions anymore--yet they certainly are a pretty reliable store of value.  Thanks for posting what you did.  I don't have a background in economics, but I find it fascinating.

Hoarding will matter till a point of time, until money starts circulating around quickly (Money velocity).
Once money velocity is high, increase in hoarding will not matter.

I believe it still needs demand for the price to go up though, this is just like a demand and supply law for fiat money.
If for instance US wants to buy products from Japan, they would need YEN before they can do so. And so YEN's demand go up and so is its value.
IF bitcoin merchants only accepts bitcoin for the fear of chargebacks, this means people will have to buy BTCs thus making BTC value go up.

Yen's value is not directly related to the demand of Japanese goods, this is clearly proved by the Plaza Accord which made Japanese Yen doubled its value against USD over 3 years. Central banks can easily manipulate the forex exchange rate with their large reserve, which is magnitudes larger than the import/export of a country

Similarly, bitcoin's value is not directly related to the transaction demand of bitcoin (which is very little) but affected by those large capitals on exchanges. The demand does not come from transaction, but from investment, larger effect

In anyone's eyes, bitcoin is no difference than a foreign currency that does not accepted by majority of merchants in his country. Suppose that bitcoin is selected by a small pacific country as its national currency, and maybe no one will ever travel to that country in their life time, would that make bitcoin suddenly more or less valuable ?  No, it is still the exchange decide its value, and has nothing to do with the GDP of that country, since the economy activity of that country is too small comparing with the capital flows on exchanges

Not everyone will sell at the same point, everyone has their criteria, so it is evened out in a longer time frame. There are 370,000 babies born every day, never ending saving capital inflow, keeps its value afloat

The current monetary system intentionally discourage saving by inflation and punish savers, but the demand for saving still exists, especially in new generations that seek early retirement, so it ends up with higher price for capital goods, bitcoin is also one of them

As long as we keep promoting bitcoin and its various uses, more and more people from the mainstream will start trusting and using it and saving it. Still there is a huge risk element to it price wise which is what puts a lot of people off. I was talking to my Dad about it the other day and he appreciates its uses but as a store of value he is still nervous about investing in it..So it will take more convincing to get the main stream people into it..but it is happening..

most the value from bitcoin comes from speculation from people who dont intend to use it to buy
things. Most people who I talk to just keep their coins and sell on rise and buy on dips. They don't
actually use it to pay bills etc.

this also translate in, bitcoin does not need to get used to be worth a good value, which lead me to think that holding is always a good thing

but this does not mean that buying should be dismissed, the real backbone of the network is the demand and buying is the important thing here not the usage

in the remote case of a global adoption if for one day everyone stop using bitcoin, the price would remain there more or less

i think that the usage matter more nowadays, to spread faster the adoption, but when that point is reached, it will be less significant

If money is "refused in transaction", then demand is lower, negating the premise.

I think bitcoin will grow more in value when there's more demand for it. I am one of those people who are just holding for the most part. I don't spend bitcoin on a day to day basis.

I agree that bitcoin doesn't need to be spent to raise in value or even stay at it's value. If people keep buying bitcoins or trade, etc, there will be more demand for it.
Therefore, people who are holding don't need to spend it if they don't want to.

Makes sense, of course I'll use the 4K dollars and I'll hold on to bitcoin as long as possible in order to gain from deflation as you said.
There's also another reason: if I consider how hard it has been to accumulate my bitcoin no way I'm going to give up on them so easily.

The grain is useful in feeding us, so it has value. The fiat money has no value if it is not used in transaction, or if it cannot be used to buy things. The value of bitcoin is from the trust we can use it to buy things.

Yes me too! Let the people do as their money as they wish for God's sake. I do try to spend whenever I can I try to help by boosting the number of transactions, Bitcoin ain't just money. It's a commodity as well.  A store of value as well. And many more things!

I was always saying that we should be after Fiat people not against the Bitcoin hoarders! :)

To me Bitcoin is more a store of value right now than being a currency.So I can understand when people just wanna hoard it.Especially when you keep in mind how incredibly tiny Bitcoin still is.Who wants to miss this train when it finally leaves the station?
Nobody of course!
Everybody saying you have to spend your coins is just a dude looking himself for more!More coins in circulation probably mean lower price to buy.

Damn right! Let bitcoins circulate there are merchants accepting it, spend it.
If you are like me who earn bitcoins through the forum, spend it in the forum itself. I bet on gambling sites, check my signature. :)

If a money is depreciating fast, then people will refuse to accept it, thus further accelerate its depreciation. When hyperinflation happens it goes quite quick, even central bank raise the interest rate to 10% does not help to prevent its fall. It started at exchange and capital market level, consumers are the last to feel the effect

Transaction demand comes from trading, if fiat money are not accepted, some other transaction medium will gain traction. I guess the next big bitcoin rally comes when we were hit by a wave of severe inflation

Exactly. The demand for bitcoin mainly comes from investment and saving, and the effect on its value is much more powerful than spending:

Buying one bitcoin and store it for 10 years, it disappears from market for 10 years thus permanently reduce the market supply. However, you have to spend it every 60 minutes to keep it constantly occupied thus permanently reduce the market supply, so you need much larger transaction activity to reach same level of effect as saving

Most people don't realize that saving is the largest demand for money because it has the lowest velocity. And nowadays you barely can find some project worth investing, almost everything is overproduced, more and more people from new generation are aiming for early retirement, all creating a large demand for investment/saving

This isn't entirely accurate. If you could do nothing with bitcoin but convert it to fiat, then it would have low utility and low value. It is only because you can purchase things with bitcoin that it has value. Look at all the altcoins that serve no market function: they're all virtually worthless because the only thing you can do with them is exchange them from bitcoin to the altcoin and back. No one accepts them for any goods and services, so they have no value because they don't serve a function. There's no point to them.

If your fiat money lose half of its value every day (e.g. everything's price doubles every day), then even every merchant accept it as payment, you will get rid of it as quick as possible. To be able to store value over a long time is the most import prerequisite for any kind of money. You can observe that when bitcoin price rises, merchant acceptance are higher, since it can hold value very well. When the price falls, more merchant will refuse to accept it

There are many financial products that you can not find any merchant accepting them for goods and services: Bonds, stocks, options, futures, gold etc... But they usually worth a lot. From a pure financial point of view, as long as there is exchange, anything that have value is interchangeable. Similarly, those altcoins also have value if you can sell them for bitcoin and then sell bitcoin for fiat money. The reason that merchants do not accept altcoin is because their infrastructure is magnitudes weaker than bitcoin, and it is enough to have one cryptocurrency in merchants many different payment options

On the other hand, there aren't many merchants who accept it presently who actually hold bitcoin. Rather, they use payment processors who accept payment in bitcoin on their behalf and immediately convert the transaction into USD. The value of bitcoin is not stable enough to let businesses use it with any confidence that they won't lose money on their transactions, so it is far safer to immediately convert to fiat and pay a small fee in order to serve a niche market that wants to pay in bitcoin.

An investment in stocks and bonds (which represent an ownership stake in a business) is not comparable to bitcoin, which has no potential to create income. It is the ownership stake in a business which gives stocks and bonds their value. Anything can have value, yes, we agree on this. But I wasn't disputing this. My point was that utility gives value, and altcoins have no utility, which is why they only go down in value. It doesn't take much to accept an altcoin as a merchant, literally just an address which you can set up in less than a minute. The reason they don't is because it's not even worth that little effort.

The income brought by bitcoin is already much higher than any kind of stocks and bonds. If the stock/bond price fall 20% while you get a 2% dividend/interest, that is a loss not income

Bitcoin's biggest utility is to bring you income long term wise. Altcoin is much more risky because their function can all be done in bitcoin, and to concentrate the effect of investment, capital usually goes to the strongest network

Exactly, that's the reason merchant acceptance does not affect bitcoin's value, it is mainly decided by the capital inflow, which comes from people's demand for saving. Current gentle inflation monetary policy already removed the possibility to use fiat money for saving, then this demand must find a suitable currency, which is bitcoin

First, income on an investment means return on capital. If you buy a bitcoin, 100 years later, you still have a bitcoin. There's been no income, and there will never be any income associated with owning a bitcoin.

That is not to be confused with capital appreciation. If you buy a bitcoin for 100 dollars, and later sell it for 200 dollars, you have realized capital appreciation. Bitcoin only affects your wealth through capital appreciation or depreciation. There is no underlying business that creates profit, like with stocks and bonds. A stock can affect your wealth through capital appreciation and through income distribution, where it pays a portion of current profits to the owners.

So no, the income from bitcoin is not much higher than any kind of stocks and bonds, because there is no income associated with bitcoin. And you can't make that argument for capital appreciation either, because bitcoin is down 67% from it's high price in 2013. Odds are that anyone who bought bitcoins any time in 2014 is still sitting on a loss.

For the most part, we agree here. Merchants have a negligible effect on bitcoin's price.


Don't agree here. Bitcoin is a terrible choice for holding long term value due to it's historic and extreme volatility. The USD is far superior in every aspect for saving, and USD will continue to be fine for saving for the foreseeable future.

You did not count in the purchasing power loss of fiat money, which makes all the calculations here irrelevant. I get double amount of dollars, that does not mean the purchasing power is higher than the time I purchased bitcoin, since everything else's price could have also risen against dollar by 100%

All the current business calculation is based on a hidden indication that fiat money have a fixed value, which is definitely not true for anyone can see the whole picture. USD has lost most of its value in the past century and even now it is depreciating against all capital goods at an amazing speed

Unless you bought exact in the bubble top, if you calculate the price of bitcoin with Ruble, you will easily see that everyone who bought bitcoin with Ruble has already returned to profit, early investors have gained hundreds of times in terms of Ruble

You can always deleverage if you think the risk is too high, but if you deleverage the risk of bitcoin to the same level of other financial products, you will clearly see that the return would be magnitudes higher than any other investments on this planet

In the future when bitcoin is fully adopted, the value of a bitcoin will flatten out and the return from investment will go to 0, so nobody will invest. What will support the price then?

Even bitcoin is fully adopted by existing working people, there are still 370K new baby born every day, and every day similar amount of young people enter the labor market and begin to save for future spending or retirement, some of them will purchase bitcoin, so you will never run out of new buyers

So, the exchange rate of bitcoin against fiat money will keep rising due to that these new people will have higher and higher total fiat money income each year because of inflationary monetary policy. If one day fiat money stopped printing, then bitcoin's price will stop advancing, but it is almost impossible since that means the economy must stop growing

Of course the price does not develop like a clock, there will be waves of large rally and crash, even driven by credit money. But eventually bitcoin on market will become less and less and new people's fiat money income will just get more and more, so the trend is clear long term wise. The only question is why should every one purchase bitcoin instead of other capital goods, I think at least some part of the portfolio will contain bitcoin, because it has some unique properties that all the other investments do not have

Since when was that a popular concept? Money does not work like that. Something is worth as much as the next dumb person of is willing to buy it for.

This is why no one is telling people to spend their coins. Some people even encourage hodling. If there is the same amount of demand but less supply, prices go up.

This problem has its interpretations to be made in order to tell all the possible scenarios. In the first view the title of the thread is true. Because more is used a currency in the market more was the overall supply of it in a given time. This for sure can push in its decrease of price compared to the currencies existing or used legally in the same area. For example if we take the euro and us dollar and make us dollar circulate 3 or 4 time (in the area USA-Europe) while the euro only one time, the market will be always full of us dollars and this could decrease its price compared with euro. But in the other hand if a currency (with the aim to increase its value) is taken under the mattress that currency maybe can be forgotten that exist (only to make an extreme example). So needed to be used

The conclusion: use with caution and when have need. Then are the owners of the currency (the State) which think for the other things. Through their Central Banks. Our problem remain bitcoin which have not owner. "He" will be always owner of itself and as such will act at the market following only one law: the law of supply/demand. As such, always unpredictable in short time and maybe (because of other its characteristics) a few in long term.

Inflation is not high, so your comment about that doesn't provide anything useful. And you completely missed the point since I wasn't speaking about specifics, but illustrating the difference between investment income and capital appreciation.

USD is not depreciating at an amazing speed. Current inflation is around 1%, which is historically very low. Compare a very low depreciation rate to bitcoin, which can't hold stable value hour to hour, and there's no question as to which of the two is better suited to store value.

Actually you are the one who is wrong.

It's not spending that gives value to something, but demand. Your argument is just a Keynesian lie.


It doesnt matter if you spend bitcoins or store it, BUYING BITCOIN is what gives it value.

Why BUY IT? Thats another question. Buying bitcoin gives bitcoin value, and why does one person buy bitcoin, thats his choice?


You can buy bitcoin to:  store, buy items with, donate, invest,transact, etc....


The spending-only argument is a Keynesian bullshit :)

Inflation is not high? Look how many times those stocks and housing price has been rising. Do you know why all those things that bankers buy are not included in inflation index?

Did you read my post or just say no to every thing you see ;)

Of course inflation isn't a good thing and our current currency system with the federal reserve and Washington spending continental GDPs worth of money in a matter of months. The dollar in the long term is fucked.

All the capital goods are not included in the inflation index. The house price is not included. The house rent and house repair is included.