Bitcoin does not need to be spent constantly to maintain its value

[johnyj]

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

[AtheistAKASaneBrain]

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.

[Graphics]

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

[johnyj]

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.

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?

[helloeverybody]

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.

[virtualx]

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

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

[The Sceptical Chymist]

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.

[panju1]

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

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.

[enhu]

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.

[johnyj]

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

[johnyj]

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.

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

[qiwoman2]

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..

[btckold24]

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.

[Amph]

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

[odolvlobo]

No matter how much the transaction demand is, if a money is quickly losing its value every day, it will be refused in transaction.

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

[bitlancr]

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.

[MaxTax]

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.

[acquafredda]

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.

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?

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.

[Naficopa]

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

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.

[Mickeyb]

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.

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!