Gresham's law and Bitcoin

[zasad@]

https://en.wikipedia.org/wiki/Gresham%27s_law

"In economics, Gresham's law is a monetary principle stating that "bad money drives out good". For example, if there are two forms of commodity money in circulation, which are accepted by law as having similar face value, the more valuable commodity will gradually disappear from circulation.[1][2]

The law, which has been known and articulated in classical Antiquity and in medieval Europe, Middle East and China, was arbitrarily named in 1860 by Henry Dunning Macleod after Sir Thomas Gresham (1519–1579), an English financier during the Tudor dynasty."


"As the exchange rate value of bitcoin (“intrinsic value”) rises rapidly, bitcoin becomes a kind of “digital gold” that will accumulate rather than be used for payments and purchases.

The same goes for the government's underestimation of bitcoin.

Thus, bitcoin falls into the trap of Graham's Law, which prevents it from spreading in settlements and payments in material and service markets."
This opinion is from this article:
https://golos.io/@uanix/bitkoin-v-lovushke-zakona-greshema

What do you think about this?

[NeuroticFish]

The same goes for the government's underestimation of bitcoin.

Thus, bitcoin falls into the trap of Graham's Law, which prevents it from spreading in settlements and payments in material and service markets.

Imho, the huge increase of the price, the number of digits and the possibility to use even more, makes Bitcoin remain suitable for every day payments, as soon as something fast and cheap (LN?) will become fully operational, no matter that on a big scale entities hoard it as "digital gold".

The fact that governments underestimate and don't understand Bitcoin is normal. The advisors there are economists and those lack of understanding in Bitcoin is already well known. And this may be good after all. It's better to underestimate it and leave it be than see it as an enemy and block it. Because let's face it, Bitcoin's philosophy is not exactly governments'/banks' friendly.

[Charles-Tim]

What do you think about this?

In this regard, Bitcoin is the good one while fiat is the bad one, and due to some reasons, the bad money might drive out the good money (Bitcoin). I also get the point that the good money (Bitcoin) can oust the bad money which makes it to be like a competition between the government and freedom in relation to centralized and decentralized money holding and usage.

Therefore, according to the aforementioned Bendukidze supplement, cryptocurrencies will oust fiat currencies from circulation, which are completely controlled by the state.

I want to be more specific on Bitcoin, it was not created to oust fiat, it was create to give freedom and privacy which is just an alternative to centralized money. If the true design of Bitcoin can make fiat go to an extinction, the government can regulate it, most people nowadays do not even care about privacy while they prefer the use of custodial means to use Bitcoin and other cryptocurrencies  (although, I am not recommending that).

Bitcoin does not totally fall into this category as a money that will disappeared, but it fall into the category of good money. Some countries especially the Western countries see the good reason to allow citizens to use this Bitcoin and other cryptocurrencies, while the governments are trying to regulate it. Bitcoin is not even showing any sign of extinction because the governments of the world are thinking differently. Fiat will remain fiat which is inflationary while Bitcoin will remain deflationary and an alternative to fiat and a store of value.

I even see fiat as good and the reason people embrace Bitcoin and other cryptocurrencies, without the fiat, why will people be buying bitcoin, if nothing that fiat is inferior in value to Bitcoin, people will not embrace bitcoin, it is because the fiat is a deflationary currency is the reason people see the value in Bitcoin as a safe haven. We are just in the world fiat will coexist with Bitcoin and other decentralized currencies.

[Lorence.xD]

I don't think that it applies to bitcoin though because bitcoin isn't a primary medium for commodity exchange and it's not even entirely a currency because it's a bit of a half of asset and currency, that's my reason why it's not in the scope of Gresham's Law.

[zasad@]

I haven't thought much about this situation, but an interesting thing is happening.
The more Bitcoin gains popularity, the more people will keep Bitcoin as a store of value, because the amount of Bitcoin is limited.
Therefore, the number of coins on the market will decrease.

[ranochigo]

Bitcoin's sole purpose is to be used as an alternative currency. The value of which comes from (or at least should come from) the value of the coins being determined by the market for it's utility as a currency. If you're not going to use Bitcoin as a currency that can be transacted, there is no purpose for Bitcoin at all. At that point, Bitcoin's value falls and the cycle repeats. The current rapid rise is due to the widespread speculation, which isn't exactly healthy for Bitcoin's price stability.

Gresham's Law doesn't apply to Bitcoin but rather currencies which contains precious metals.

I haven't thought much about this situation, but an interesting thing is happening.
The more Bitcoin gains popularity, the more people will keep Bitcoin as a store of value, because the amount of Bitcoin is limited.
Therefore, the number of coins on the market will decrease.

That is untrue. Economics indicates that for a specific price, there is a specific number of people that are willing to purchase and/or sell. There will be no point where scarcity of the actual coins becomes an actual issue due to people being unwilling to sell. Something like this would just cause Bitcoin to completely lose it's utility. At that point, then what is the use of Bitcoin? Why would people still be interested in it? Do they find something interesting with digital money that isn't functional as a currency?

[Karartma1]

I haven't thought much about this situation, but an interesting thing is happening.
The more Bitcoin gains popularity, the more people will keep Bitcoin as a store of value, because the amount of Bitcoin is limited.
Therefore, the number of coins on the market will decrease.

In recent years it has always happened like that and looking at the data on Glassnode it is clear how the shortage of bitcoin on the exchanges in favor of the long-term holders brings the price to rise inevitably.
Among the exchanges, with the next bull run be prepared to see some blowing up because many operate in fractional reserve. And when the market will bank-run the balance sheets of the exchange (mostly fake) will not be able to honor the positions of customers (most of them).
So hold on to your keys (better multi-sig).
You know we always talk about it.

[Foxpup]

"In economics, Gresham's law is a monetary principle stating that "bad money drives out good". For example, if there are two forms of commodity money in circulation, which are accepted by law as having similar face value, the more valuable commodity will gradually disappear from circulation.[1][2]"

There is no law in any country that I'm aware of forcing Bitcoin to be accepted at a similar face value to other currencies. Bitcoin's value is free to fluctuate with respect to other currencies as market conditions change, so Gresham's law doesn't apply.

[just_Alice]

So basically this is a very long way of saying that we can't use cryptocurrencies for purchasing unless they are accepted and regulated by the government. Didn't we all know that before?

Also, I think it is a little inappropriate to apply Gresham's law dated 1560's which was accurate for THAT economy in today's world. Things have changed since then. Just one example, at that time the options for investment and storing value were very limited, so there was "bad" money and "good" money. But I think many would agree that nowadays in terms of STORING there are better options than cryptocurrencies, it's not what they were meant for.

So, to conclude, Bitcoin hasn't fallen into any kind of trap, it's going to be just fine.

[hatshepsut93]

There is no law in any country that I'm aware of forcing Bitcoin to be accepted at a similar face value to other currencies. Bitcoin's value is free to fluctuate with respect to other currencies as market conditions change, so Gresham's law doesn't apply.

But you can still make an observation that people own both Bitcoin and fiat would rather spend fiat before Bitcoin, because Bitcoin increases in value while fiat decreases. It's not the exact formulation of Gresham's law, but it is quite similar to it.