What's wrong with valuing BTC in fiat?

[Kluge]

(this was a hijack in another thread, so figured it should be moved somewhere separate -- deleted my reply in original thread)

I don't think I'm on the same page as those suggesting BTC shouldn't be valued in fiat. I don't understand how it's possible -- maybe my brain doesn't function the same way to be able to process the idea. I can't wrap my mind around the idea that buyers and sellers shouldn't be looking to something familiar (and high-volume) in valuing BTC in transactions. If someone could help me understand, I'd appreciate it.

Posting the exchange rate furthers the screwed up perception that Bitcoin is just a proxy for the USD. It also encourages more emotional involvement with the price roller coaster.  Over focusing on USD/BTC prices may encourage regulators to argue that Bitcoin isn't its own valuable asset but is instead some kind of shell game to move around USD (which is a crappy argument, but it's made stronger the more people fixate on the exchange rate).

It's not reasonable for all things, but what I'd like to see is more goods and services being priced actually in Bitcoin without reference to USD, because without that we won't have price stability. Promoting the market prices would be a step in the wrong direction.

Now, if someone wanted some kind of optional ticker thing, sounds fine to me, but you can do that via a browser addon...

So - now I'm interested, because I hear it often, but often don't have great people to ask for clarification from.

USD has pretty much every imaginable good on the face of the Earth priced with it, usually hundreds of times by different merchants.

How does someone establish a price on something in Bitcoin without comparing it to USD? I mean -- it's not just a proxy for USD, obviously, and just about every other fiat currency has a BTC price established. But - if you can buy Printer XYZ123 for $40, how can you ever be a competitive merchant who completely ignores that USD price, especially considering you're probably purchasing either the printer or the materials for the printer in a fiat currency? I understand the benefits behind decoupling BTC from USD, I just don't understand what incentive anyone has to do it, outside of ideology and a long-term commitment to BTC.

EVERY major fiat currency is priced against all the others. Whenever someone talks about the value of currency, they either price it against commodities or currencies - but nobody would think "Oh, I can exchange EUR to USD, so EUR must be reliant on the ability to buy USD with it." I suppose the argument is that Bitcoin doesn't gain and maintain value based on the ability to convert it to and from USD.... but I just don't see how it'll ever be possible to really separate BTC<->fiat exchange when thinking "what's a Bitcoin worth?" You have to compare it to something, and the most market data exists for USD, EUR, and CNY.

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[DrGregMulhauser]

EVERY major fiat currency is priced against all the others. Whenever someone talks about the value of currency, they either price it against commodities or currencies - but nobody would think "Oh, I can exchange EUR to USD, so EUR must be reliant on the ability to buy USD with it." I suppose the argument is that Bitcoin doesn't gain and maintain value based on the ability to convert it to and from USD.... but I just don't see how it'll ever be possible to really separate BTC<->fiat exchange when thinking "what's a Bitcoin worth?" You have to compare it to something, and the most market data exists for USD, EUR, and CNY.

As far as I can tell, this is exactly right. (And after all, this is essentially what the 'float' means, that currencies are valued in pairs against one another.)

I wonder whether the "think in Bitcoins" mantra might be aimed at trying to encourage people away from something analogous to the "what's that in real money?" question that folks sometimes ask themselves when travelling in another country. You know how it goes: "OMG, they want 418 doohickeys for a Coke! Wait, what's that in real money? Oh, it's only 95 cents -- OK, then!" Even when someone moves to a new country, it may take awhile before they stop converting all the doohickey prices they see into their former currency. What eventually makes that transition possible, that transition to seeing the new currency as a "real" currency, is probably developing a network of reference points -- getting paid in the new currency, buying milk in the new currency, pricing accommodation in the new currency, seeing a film with a ticket priced in the new currency, etc. -- that moves it from being a purely mental exercise to one that is grounded in a real environment of goods and services and other people.

Although the "think in Bitcoins" mantra is well intentioned, to me it feels a little artificial given the very early stage of development of that sort of network of reference points.

[Kluge]

How do communities adapt to their currency of choice frequently fluctuating up and down in value?

Would an edict pass declaring nobody shall change their prices, because it may act as a catalyst in the price fluctuation - or try to let it work itself out? We talk about price fluctuations pushing merchants away - but with services like BitPay, while it does strengthen the bond with the hard-to-deal-with fiat banking systems & regulations, does solve the fluctuation problem for merchants. Wouldn't the price be most likely to stabilize with a constant in/out flow which services like BitPay provide by broadening the number of merchants willing to accept BTC?

Is gold considered a way to move USD around since pawn shops frequently have real-time access to USD prices when buying and selling?

[DrGregMulhauser]

How do communities adapt to their currency of choice frequently fluctuating up and down in value?

For communities that have a functioning economy, where it is partly the economy that defines the community -- like, say, a group of people in the same nation state trading with one another -- I think it's quite unusual to see that in terms of buying power within the community. I.e., the currency might go up or down versus other currencies, but in terms of local buying power, I would have guessed it's more often trending up or trending down rather than bouncing back and forth. Where it does start suffering too wildly, I think historically the 'solution' has tended to be either replace it or peg it.

Would an edict pass declaring nobody shall change their prices, because it may act as a catalyst in the price fluctuation - or try to let it work itself out? We talk about price fluctuations pushing merchants away - but with services like BitPay, while it does strengthen the bond with the hard-to-deal-with fiat banking systems & regulations, does solve the fluctuation problem for merchants. Wouldn't the price be most likely to stabilize with a constant in/out flow which services like BitPay provide by broadening the number of merchants willing to accept BTC?

IMHO, top-down price controls rarely work out, but as for more trade -- more merchants accepting it, more consumers buying with it, etc. -- that seems like a winner to me. Also, I know I'm frequently banging the derivatives drum, but for businesses to handle any significant volume of BTC is going to require more effective hedging mechanisms than just converting BTC to fiat as quickly as possible. What business wants to bear additional risk without some kind of potential benefit to counterbalance that risk?

Is gold considered a way to move USD around since pawn shops frequently have real-time access to USD prices when buying and selling?

I'm guessing that most assets which are both relatively liquid and standardized -- as gold is, at least in coin form -- could be viewed as a decent way of moving USD around. Gold in bar form introduces higher assay costs, reduces liquidity, etc., but even then it could serve the purpose. On the face of it, it's not necessarily a great way of doing it, since storage and delivery costs are significant, but I suppose it depends on the goals of the person wanting to do it.

[herzmeister]

We could have different baskets of commodities to value things with (without them necessarily being a currency to hold). It's just a matter of popularization.

[Kluge]

How do communities adapt to their currency of choice frequently fluctuating up and down in value?

For communities that have a functioning economy, where it is partly the economy that defines the community -- like, say, a group of people in the same nation state trading with one another -- I think it's quite unusual to see that in terms of buying power within the community. I.e., the currency might go up or down versus other currencies, but in terms of local buying power, I would have guessed it's more often trending up or trending down rather than bouncing back and forth. Where it does start suffering too wildly, I think historically the 'solution' has tended to be either replace it or peg it.

Would an edict pass declaring nobody shall change their prices, because it may act as a catalyst in the price fluctuation - or try to let it work itself out? We talk about price fluctuations pushing merchants away - but with services like BitPay, while it does strengthen the bond with the hard-to-deal-with fiat banking systems & regulations, does solve the fluctuation problem for merchants. Wouldn't the price be most likely to stabilize with a constant in/out flow which services like BitPay provide by broadening the number of merchants willing to accept BTC?

IMHO, top-down price controls rarely work out, but as for more trade -- more merchants accepting it, more consumers buying with it, etc. -- that seems like a winner to me. Also, I know I'm frequently banging the derivatives drum, but for businesses to handle any significant volume of BTC is going to require more effective hedging mechanisms than just converting BTC to fiat as quickly as possible. What business wants to bear additional risk without some kind of potential benefit to counterbalance that risk?

Is gold considered a way to move USD around since pawn shops frequently have real-time access to USD prices when buying and selling?

I'm guessing that most assets which are both relatively liquid and standardized -- as gold is, at least in coin form -- could be viewed as a decent way of moving USD around. Gold in bar form introduces higher assay costs, reduces liquidity, etc., but even then it could serve the purpose. On the face of it, it's not necessarily a great way of doing it, since storage and delivery costs are significant, but I suppose it depends on the goals of the person wanting to do it.

Thanks.