Bitcoin too valuable to spend

[Steve]

I think the flip side of this arguments (Gresham's law btw) is that maybe some people will simply decide to convert whatever other undesirable currencies they receive into bitcoin (or other assets they consider valuable) as soon as they receive them.  In that circumstance, they won't have any undesirable currency to spend unless they go to the hassle of converting it back (and if merchants accept bitcoin, why would they do that?).

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[Prze_koles]

I think the flip side of this arguments (Gresham's law btw) is that maybe some people will simply decide to convert whatever other undesirable currencies they receive into bitcoin (or other assets they consider valuable) as soon as they receive them.  In that circumstance, they won't have any undesirable currency to spend unless they go to the hassle of converting it back (and if merchants accept bitcoin, why would they do that?).

+1!!

[FreeMoney]

If you are not at the point of ambivalence about which of your currencies to spend them you need to buy more of the one you find too precious to spend. It makes no sense to claim that you value an extra bitcoin way more than the equivalent amount of dollars, but not trade the dollars for coins.

[qualia8]

Earlier posters are right.  The free market should set the USD/BTC exchange rate precisely at the point where it makes equal sense to spend both.  If BTC were going up in value and the dollar down, for sure, then BTC's current price would go up to reflect that.

However...  we can still talk about differences in the scenarios in which one or the other currency has a guaranteed government monopoly.  Then, their adoption leads to different behavior.

IF there is only one form of money and it is frequently, artificially, and arbitrarily inflated by a governing body that looks out only for itself, THEN people will spend that money faster.  If bitcoins were the national currency and USD were like bitcoin, scrounging around in a few tiny corners of the economy looking for shelter from banks and senators, then people would save more and spend less.

[vectorvictor]

People will be reluctant to spend bitcoin while it is rapidly appreciating in value.  It's a problem.

To counter this, merchants might offer a 5% or 10% discount for payment in BTC (because hey, they prefer having bitcoin too).

Currently, merchants pay 4% more when their customers use credit cards.  They would like to offer a discount for payment in cash, but they can't, because it is against the terms and conditions of the credit card companies.

There are no lawyers and no weasel rules or restrictions with bitcoin, so they're free to do the Win-Win thing with their customers.  If BTC catches on in a big way, and both merchants and customers give up on credit card companies completely, well, good riddance.

[BitcoinDealer]

Except that it won't go up in value.

His whole comment is speculation, trying to leverage up the value of Bitcoin while it's true consumer value is 1$ at most.

[tomcollins]

Eventually speculation will drive the price to the "proper" value, and then the value won't change terribly much (or at least there will be no expectation that it goes up that much), then people will spend more.  Assuming there's anything worth buying with it.

[BitcoinPorn]

To sum up this thread, people are using Dollars, backed by Bitcoin, choosing to do that instead of using the Dollar backed by Gold.   However, we all should just switch to Bitcoins backed by Gold, hoard the Bitcoin, spend the Gold, the USD is now completely useless? 

Actually, isn't that what a lot of people want out of Bitcoin.  I prefer having many forms of currency lol.  I am fucking around, but I see some interesting points here and will now just go into lurk mode, the way the daily/hourly/by the minute (multiple) exchanges of Bitcoin works makes old school way of thinking on currency a little different imo, so older theories and maybe even things that were known as true are adjusting.

[flug]

I think the flip side of this arguments (Gresham's law btw) is that maybe some people will simply decide to convert whatever other undesirable currencies they receive into bitcoin (or other assets they consider valuable) as soon as they receive them.  In that circumstance, they won't have any undesirable currency to spend unless they go to the hassle of converting it back (and if merchants accept bitcoin, why would they do that?).

+1!!

Doesn't this response completely answer the original question?

[BubbleBoy]

A divisible and fungible asset like a currency can never be "too valuable to spend", since by definition you get the value of the amount you spend. By virtue of comparative advantage, from your point of view it's at most as valuable as the things you decide to buy.

What interferes with the spend decision of the holders are those pesky deflationary expectations everybody rants about, and that somehow "don't apply" to bitcoin. If an asset is expected to rise, people will hoard it given the choice. It's only human to aim for realizing the gains of your most productive assets. You will always slaughter the old cow, not the gestating one.

For a non-productive asset like bitcoin the expectations are purely speculative (if they were technical the efficient market would have corrected the price up). So the correct title of the thread is Bitcoin too hyped to spend: captures both the deflationary aspect and the speculative mania aspect.

Gresham's law does not apply because the government does not force a certain $/BTC parity (or anybody else for that matter).

I don't wanna go into a whole discussion about money supply and money creation again, but a constant monetary base ( = the 21 million coins) doesn't mean there is no (monetary) inflation.

for comparison, USD money supplies:


if you look at M1 (which is an even wider defined money supply than monetary base) up until 2008 when everything went to hell in a handbasket, you can see that the money supply of USD central bank money was constant, yet, there was PLENTY of inflation, price and monetary.

I believe the time scale is to small to actually see a direct correlation between the ~0% M1 increase in 2006-2007 and the inflation in those years. Just like deflationary expectations, there are inflationary expectations. People expect to have their paychecks increased yearly, and this eventually goes into the price of goods and services, regardless if no more currency was injected into the market. I think our old friend Milton would say that inflation is always a monetary phenomenon and if printing stops, so will inflation, eventually. So the 2007 inflation was made possible by earlier printing.

[flug]

If an asset is expected to rise, people will hoard it given the choice. It's only human to aim for realizing the gains of your most productive assets.

If you convert all of your currency into bitcoin, hunger will force you to spend them, no?

[kiba]

Time preference means some investors will exhaust their patience and cash out.

Also, newbies that brought into bitcoin will have an irrational aversion to loss, which explains the current price stability.

Let not forget that investors' return is dependent on the size and growth of the economy so some will be interested in boosting productive capacity of the economy.

[kiba]

If an asset is expected to rise, people will hoard it given the choice. It's only human to aim for realizing the gains of your most productive assets.

If you convert all of your currency into bitcoin, hunger will force you to spend them, no?

Or you may finds goods and services that you really want, but you have like 4000 bitcoin and this thing cost 1.50 BTC.

[fascistmuffin]

If an asset is expected to rise, people will hoard it given the choice. It's only human to aim for realizing the gains of your most productive assets.

If you convert all of your currency into bitcoin, hunger will force you to spend them, no?

Spending on needs(food, clothing, shelter) isn't really a "choice" in the economical sense. Choice is more like buying a new TV or having a $40 meal. Those are not needed for survival.

[BubbleBoy]

If an asset is expected to rise, people will hoard it given the choice. It's only human to aim for realizing the gains of your most productive assets.

If you convert all of your currency into bitcoin, hunger will force you to spend them, no?

That's why I said "given the choice". Suppose you are the supermarket, they accept both USD and BTC, and you have a portable BTC e-wallet and some dollar bills. After the novelty wears out, rational people will not pay with BTC. And this is why you will never be able to pay groceries in BTC. Deflation destroys trade.

[Jaime Frontero]

If an asset is expected to rise, people will hoard it given the choice. It's only human to aim for realizing the gains of your most productive assets.

If you convert all of your currency into bitcoin, hunger will force you to spend them, no?

precisely.

while the OP notes that:

...if a merchant accepts both Bitcoin and Fiat currency people will always prefer to pay with fiat currency simply because the equivalent bitcoin is seen to be more valuable.

...he neglects that which has the most impact on that calculation:  what can one afford?

in my line - rare books - this is a common question, with a simple answer.  if one buys a group of rare books - from an estate, for example - one is left with the question of how to sell them, and there are really only two choices.

1.  sell the very best books first - they will sell more quickly and for more money.  you will get your investment back sooner, pay your bills, and take your profit from the crappy books afterwards.  the problem here is that you are depending on profits from merchandise of lesser quality - it frequently doesn't work out that way, and you're stuck with crap.  or,

2.  sell the crappy books first.  it'll take longer, and you'll have to find some way to eat and pay the rent until they sell - but when you're done with those you'll have the very best stuff to sell, which should give you your profits in larger sums (always good).  the drawback here is the vagaries of the market; books tend to fluctuate in value, as most luxuries do.

so the answer here is the same:  what can you afford?

Postulate:  as the economy of the world deteriorates, Bitcoin will do better as a medium of exchange and become less of a value store or speculative medium.

[flug]

That's why I said "given the choice". Suppose you are the supermarket, they accept both USD and BTC, and you have a portable BTC e-wallet and some dollar bills. After the novelty wears out, rational people will not pay with BTC. And this is why you will never be able to pay groceries in BTC. Deflation destroys trade.

Why would you give yourself that choice? If bitcoins are so valuable, why would you not immediately convert all your USD to bitcoins?

[JoelKatz]

Why? Because if a merchant accepts both Bitcoin and Fiat currency people will always prefer to pay with fiat currency simply because the equivalent bitcoin is seen to be more valuable (i.e. $100 woth of bitcoin is > 100$ fiat).

I think this is an interesting point. Thoughts?

It's nonsense, for two reasons:

1) If it was correct, it would apply equally well in the other direction. If a merchant accepts both Bitcoin and fiat currency, people will always prefer to pay with bitcoin simply because the equivalent bitcoin is seen to be more valuable and thus the merchant will be willing to accept a lower price.

2) It contains the oxymoronic claim that that the "equivalent" bitcoin will be "seen to be more valuable". If it's seen to be more valuable, it's not the equivalent, it's less than that.

The reason people hoard gold (and people may hoard bitcoin for the same reason) is that they irrationally believe it will increase in value (or, equivalently, that their fiat currency will decrease in value) more than other people do. So they think others are underpricing its future value today. However, there are also going to be people who think bitcoin will blow up any day now, so they will think others are overpricing its future value.

In any event, hoarding is a fact that influences the price of a currency, but that influence is to increase its value. Scarcity isn't a problem with bitcoins because they are divisible.

[flug]

To put it another way:

If BTC is appreciating by 0.1%/month, whereas USD is depreciating by 0.1%/month, then if you convert your USD to BTC as soon as you receive your salary you'll get free relative 'interest' on your salary per month and as all you have are BTC you'll be spending those during the month on food, TVs, etc.

[Grinder]

A divisible and fungible asset like a currency can never be "too valuable to spend", since by definition you get the value of the amount you spend.

Of course it can. Lots of people here would not sell bitcoins at the current exchange rate because they think it's too low, so why would they spend them for something using the exchange price as reference? Unless they have no fiat currency it would be irrational, because converting fiat to bitcoins has a fee. It's more economical to use the fiat.