Is Bitcoin going to be a Store of Value or a Legal Tender Currency?

[nondormomai]

Hello everyone,

I came across this hypothesis on a finance forum.

I'll share it with you and ask for your suggestions, advice, comments, etc.

Thank you!

Let’s start here:

Bitcoin was originally conceived as a peer-to-peer currency project. However, it seems to have failed in that purpose for various reasons (such as limited scalability, among others). Today, few believe BTC can be taken as legal tender currency.
In my view, the best definition of Bitcoin is this: BTC is a "thing" that, in a digital environment (where money is information and thus potentially infinitely replicable), can be transferred across space and time without intermediaries and in a censorship-resistant way. Its value is solely determined by the relationship between demand and it solves the "double spending" problem through the shared and distributed ledger and through the immutability of the timechain.

1) Governments disapprove of BTC's self-proclaimed role as money (=legal tender currency). According to governments, Legale tender currency must remain their prerogative due to the obvious advantages this provides. Governments pay their employees in legal tender currency, they claim taxes in their own legal tender currency , and, even when issuing government bonds, they seek monetary flows in their currency (except in cases where they negotiate long-term loans with the IMF in exchange for reforms, but that’s outside our scope here). Additionally, something whose price continuously fluctuates based on user demand and offer cannot truly be considered legal tender currency. This argument underpins the reasoning of governments (of course, the value of fiat currencies also fluctuates in the forex market, but that's another matter; similarly, GOLD’s value, which until 1971 underpinned USD with a declared 1:1 ratio, is also free to fluctuate based on supply and demand).

2) Realistically speaking, there is always a strong complicity between governments and central banks in maintaining a system that, by design, devalues currency by artificially expanding its supply, increasingly decoupled from its underlying assets. This allows governments to ease their debt exposure to holders of government bonds and perpetuate their habit of contracting public debt, trusting that such debt will largely be held by their citizens.

3) For several months now, there has been a "movement" by governments to regulate BTC. The narrative of "drug traffickers' currency" has completely faded. In 2024, the SEC approved the existence of spot BTC ETFs. Trump speaks of it positively, China maintains a "fake ban", there’s no hostility towards crypto in Saudi Arabia, and many petrodollars are being used to buy crypto, the European MiCA regulation is now in force, BlackRock suggest BTC as "flight to quality", some companies are beginning to explore holding a portion of their treasury in BTC, and BTC has a market cap of around $2 trillion without a marketing department. All of this suggests that traditional finance is starting to accept BTC, treating it as a unique asset despite resistance from the banking sector (which has already been using technology very similar to the timechain for years).

4) Moreover, those who own BTC tent go hold it (exchanges have been emptied....) reflecting the tendency to offload depreciating currency and retain value-preserving assets, at least in the eyes of those who own both.

5) Now, some Governments are quite willing —and already doing so— to tax BTC capital gains like any other financial instrument. In Italy, there’s talk of a 42% tax rate (borderline unconstitutional, but we won’t get into that here).


What are the possible outcomes of this situation?

I foresee the following evolution over a 4-8 year time frame.

Since BTC can either be a Store of Value or a lkegal tender Currency, but not both (just as physical GOLD cannot serve as both simultaneously but has historically alternated between these roles at different points in its millennia-long history), I argue that it is possible, and even likely, that Governments will accept — if price volatility stabilizes — that BTC naturally evolves into a Store of Value to prevent it from being used as Legal Tender Currency.
Governments perceive its use as Currency to be far more disadvantageous for two reasons:

A) The technological "DNA" of BTC allows anyone, with a relatively low educational threshold, to acquire BTC pseudonymously and own an asset that is, effectively, non-confiscatable because it isn’t held by third parties (unlike large quantities of GOLD);

B) Governments need and will always need the ability to act on the differential between the underlying asset and monetary supply, which is not possible with BTC unless the protocol is changed by the majority of nodes (currently a few thousand worldwide, with no interest in making such changes).



Indirect Consequences?

Governments will accept that (lucky) BTC holders — those who keep it on Hardware Wallets — will end up with an asset of very high value and less prone to volatility than today.
Such an asset could then be used as collateral for loans aimed at setting up business devoted to generate what BTC is unable to create: cash flows (including government bonds).


The final considerations should sound like this:
The more indebted governments are, the more likely it is that BTC will become Store of Value (SOV).


Thank you for your thoughts, and I apologize if some parts are unclear.

[CheeseNStuff456]

Very interesting post. Do you think the association of crypto with fraud/crime will ever completely go away?

[nondormomai]

Very interesting post. Do you think the association of crypto with fraud/crime will ever completely go away?

Thank you.
Since i am not an economist, I have many doubts about those thoughts.

From my point of view, BTC is no longer associated with illegal activities.

Not more than fiat money, I mean.

[Pmalek]

Bitcoin can be whatever you want it to be. That's why I find it so funny when, for example, Roger Ver talks about how bitcoin was hijacked. Hijacked from who? It's not like it was yours and people got together and took it from you. You stood behind the group who wanted bigger blocks but the majority went the Segwit route. It's easy to see which proposal won.

Bitcoin is now a store of value and property rather than a currency. People hold it and speculate on the value to increase in the future. Perhaps this will change in the upcoming years, but Bitcoin will have to change with it. Its first layer doesn't scale enough for it to be the first-choice money of an economy. The fees are occasionally too high and that doesn't help. The Lightning Network is a semi-finished product that never reached its full potential. Hardware and storage aren't as expensive as they once were, perhaps it's time to think about first-layer scaling again. We can't play the "it's going to affect decentralization" card forever. 

[nondormomai]

Bitcoin can be whatever you want it to be.  

Not sure about it.
In actual monetary system, it is impossible that you can consider the "same thing" as SOV (Store of Value) AND as Legal Tender Currency.
As the first underpins the second. The first can has few price variations, but the second cannot.  

Of course, Satoshi has said the BTC is a "cash system". But it is clear that BTC is can be considered as SOV. Why? it can move value without duplicate it. Before the raising of Information Age, there was no risk of duplicate values, as the transaction was physically done. When duplication risk raises, BTC solves that problem.
Moreover, transactions are impossibile to be stopped by an Authority.

Its first layer doesn't scale enough for it to be the first-choice money of an economy.

That is a good point, that fits with my argument.

Governments say:
See, my friend, it is impossibile that BTC will be taken as Legal Tender Currency. It is too slow, and I can ban it, as you know.......

Btc holders should say:
You right, but BTC has also some good features. What about to take it as Store of Value and to put it into Monetary Reserve? Otherwise I will wait that the developers will build a second layer.......

Governments say:
Wait, wait, wait. Really? So Am i asked to decide if ban it or accept it? No way.......

Btc holders should say:
You do, my friend, you do......... And because you can stop it.....make your decision. Soon, please.




 

(Sorry for my poor English)


EDIT: the centralization risk on second layer, in my knowledge, is a false risk. But I have to focus on it in order to have more strong opinion.

[Pmalek]

Governments say:
See, my friend, it is impossibile that BTC will be taken as Legal Tender Currency. It is too slow, and I can ban it, as you know.......

No one can stop you from using bitcoin. Even if they ban it and classify it as illegal, you will still be able to use it.

Back to the scalability issue, we all saw bitcoin's scalability limitations back when banana-monkey tokens were the hit. I am talking about Runes, Ordinals, and the like. That mania was enough to put a stop on the normal use of bitcoin. Could you still make transactions? Sure, you could, but you had to pay $10, $20, or perhaps $50 per UTXO if you wanted a confirmation. If inscription fans can cause that amount of problems, what should we expect if bitcoin became a P2P digital tender and hundreds of millions of new users entered the market, making transactions every day?

Not that I believe that's going to happen in major economies because world governments will never give up their right to print as much money as they need.

[nondormomai]

Not that I believe that's going to happen in major economies because world governments will never give up their right to print as much money as they need.

If the past says us something, you right. No doubt about it.

Hello everyone,

The final considerations should sound like this:
The more indebted governments are, the more likely it is that BTC will become Store of Value (SOV).


Time will tell us.

[moderator's note: consecutive posts merged]

[joniboini]

In actual monetary system, it is impossible that you can consider the "same thing" as SOV (Store of Value) AND as Legal Tender Currency.
As the first underpins the second. The first can has few price variations, but the second cannot. 

How do you determine if the second has variation or not? Isn't it compared to other money, such as comparing USD to Yuan and so on? Because as far as I understand it, 1 satoshi is 1 satoshi in a vacuum, and if people use Bitcoin as the standard more, it's possible that they won't look at the fiat value. That's far into the future if we survive major obstacles that might challenge Bitcoin's adoption. Anyway, the debate about whether Bitcoin is money or just a store of value has been ongoing for years afaik.

I'm not an expert, but I'm pretty sure from a practical side of things, that using Bitcoin to pay for stuff can be way easier than using a credit card where you need a bank account. At least that's how my experience goes.

[hd49728]

No one can stop you from using bitcoin. Even if they ban it and classify it as illegal, you will still be able to use it.

If people use non custodial and open source wallets to store their bitcoins, they are free to use their bitcoins. Because with these wallets, users have private keys and full controls of their bitcoins as well as Bitcoin transactions. They no longer depend on any centralized platform or any entity like a company, a person to broadcast transaction for them, they do it by themselves with many customization for their transactions, inputs, outputs, fee rates, Tor.

How do you determine if the second has variation or not? Isn't it compared to other money, such as comparing USD to Yuan and so on? Because as far as I understand it, 1 satoshi is 1 satoshi in a vacuum, and if people use Bitcoin as the standard more, it's possible that they won't look at the fiat value.

Fiat currencies are losing their purchasing power with time and Bitcoin or satoshi is increasing its purchasing power against fiat currencies during the same time as visualized in Satoshi per dollar chart.
https://charts.bitbo.io/satoshi-per-dollar/

[nondormomai]

In actual monetary system, it is impossible that you can consider the "same thing" as SOV (Store of Value) AND as Legal Tender Currency.
As the first underpins the second. The first can has few price variations, but the second cannot. 

How do you determine if the second has variation or not? Isn't it compared to other money, such as comparing USD to Yuan and so on? Because as far as I understand it, 1 satoshi is 1 satoshi in a vacuum, and if people use Bitcoin as the standard more, it's possible that they won't look at the fiat value. That's far into the future if we survive major obstacles that might challenge Bitcoin's adoption. Anyway, the debate about whether Bitcoin is money or just a store of value has been ongoing for years afaik.

I'm not an expert, but I'm pretty sure from a practical side of things, that using Bitcoin to pay for stuff can be way easier than using a credit card where you need a bank account. At least that's how my experience goes.

1 Sat = 1 Sat. Yes. That is a kind of tautology.

Please, consider the Gresham Law (https://en.wikipedia.org/wiki/Gresham%27s_law).

Imagine you have $100 in cash and $100 in gold.
Without considering the UX, which one would you use for a purchase?

Of course, 100$ in gold tomorrow can be 99$-equivalent or 101$-equivalent.

Meanwhile, 100$ in cash tomorrow will buy less stuf than today. That " by design".

No one can stop you from using bitcoin. Even if they ban it and classify it as illegal, you will still be able to use it.

If people use non custodial and open source wallets to store their bitcoins, they are free to use their bitcoins. Because with these wallets, users have private keys and full controls of their bitcoins as well as Bitcoin transactions. They no longer depend on any centralized platform or any entity like a company, a person to broadcast transaction for them, they do it by themselves with many customization for their transactions, inputs, outputs, fee rates, Tor.

How do you determine if the second has variation or not? Isn't it compared to other money, such as comparing USD to Yuan and so on? Because as far as I understand it, 1 satoshi is 1 satoshi in a vacuum, and if people use Bitcoin as the standard more, it's possible that they won't look at the fiat value.

Fiat currencies are losing their purchasing power with time and Bitcoin or satoshi is increasing its purchasing power against fiat currencies during the same time as visualized in Satoshi per dollar chart.
https://charts.bitbo.io/satoshi-per-dollar/

The monetary system is inflation-oriented "by design". That's for sure. Thank you

[moderator's note: consecutive posts merged]

[hd49728]

1 Sat = 1 Sat. Yes. That is a kind of tautology.

It's fact for people who believe in Bitcoin. They see 1 bitcoin is 1 bitcoin, 1 satoshi is 1 satoshi, and they imagine future that value of 1 satoshi, 1 bitcoin will be bigger than now.
They don't want to lose their bitcoin or even satoshi to over spending in transaction fee.

Imagine you have $100 in cash and $100 in gold.
Without considering the UX, which one would you use for a purchase?

Of course, 100$ in gold tomorrow can be 99$-equivalent or 101$-equivalent.

Meanwhile, 100$ in cash tomorrow will buy less stuf than today. That " by design".

If you don't want volatilty, store your wealth in cash, but remember that cash decreases in its purchasing power.

If you tolerate volatility, but not too much, store your wealth in gold because gold increases in price with time, and less volatility than Bitcoin.
If you tolerate high volatility, accept bigger risk, choose Bitcoin to store your wealth.

Gold, cash can not compare with Bitcoin in ROI. It's clearly that nobody say about ROI by holding cash, it's about gold.
https://casebitcoin.com/charts#roi_chart

[fikrett]

Very interesting post. Do you think the association of crypto with fraud/crime will ever completely go away?

Thank you.
Since i am not an economist, I have many doubts about those thoughts.

From my point of view, BTC is no longer associated with illegal activities.

Not more than fiat money, I mean.

Only oldies would think in such a way about crypto, in my opinion.
But we've got lots of time and effort still till we get to the adoption of crypto on a bigger scale than the institutional one that you described.

[FinneysTrueVision]

The store of value use case is far greater than anything else right now. Even with low fees, most transactions in the mempool are currently inscriptions. When inscription activity is lower, consolidations and exchange transfers make up a significant portion of on-chain transactions. People are not using Bitcoin for payments, generally speaking; they may be reluctant to do so when the price is going up so much. Everyone is free to use Bitcoin how they prefer, as long as it does not go against consensus. The majority has chosen to hodl it seems.

[betswift]

The store of value use case is far greater than anything else right now. Even with low fees, most transactions in the mempool are currently inscriptions. When inscription activity is lower, consolidations and exchange transfers make up a significant portion of on-chain transactions. People are not using Bitcoin for payments, generally speaking; they may be reluctant to do so when the price is going up so much. Everyone is free to use Bitcoin how they prefer, as long as it does not go against consensus. The majority has chosen to hodl it seems.

For now - it's true.
But only a decade or so made BTC so known today. What would happen in another one and how would it shape our view of it and the general audience in the crypto space?
We would never know and would be able to look at the situation only in the retroperspective.

[icalical]

As I read on some online news outlet, seems like governments around the world are starting to recognize Bitcoin as investment, but most of them are still not use it as legal tender. Some policies also taxing Bitcoin profits and placing restrictions on using it as money show a predisposition to treat it like a risky investment or something to hold onto rather than everyday currency. While it seems Bitcoin has a very good chance of serving as a store of value, its use as actual official money, I think it won't happened in near future. I could say that maybe our children or grand children will be the one that enjoy decentralized global money, maybe Bitcoin maybe a new form of decentralized crypto. 

[john_egbert]

As I read on some online news outlet, seems like governments around the world are starting to recognize Bitcoin as investment, but most of them are still not use it as legal tender. Some policies also taxing Bitcoin profits and placing restrictions on using it as money show a predisposition to treat it like a risky investment or something to hold onto rather than everyday currency. While it seems Bitcoin has a very good chance of serving as a store of value, its use as actual official money, I think it won't happened in near future. I could say that maybe our children or grand children will be the one that enjoy decentralized global money, maybe Bitcoin maybe a new form of decentralized crypto. 

Govs are just getting into the game - saying different things about BTC and trying to do something with it - it's a welcomed development, in my opinion, because it pushes the narrative of the adoption of BTC, albeit not the one that many would anticipate.
We've got lots of work and news in the future.
 

[Kelward]

Just like what @Pmalek, said, Bitcoin can be what you want it to be, it's a decentralized digital cash that has gained the reputation to become a store of value. There's nothing stopping a holder from utilizing their Bitcoin to be a digital cash for payment transactions and hodling it as a valuable asset to get ROI from it. Although Bitcoin was originally created to be a decentralized digital cash, an alternative to fiat, that gives it's holders privacy and freedom but because of it's potentials to always hit new ATH in it's bull seasons it now becomes a store of value. So Bitcoin serves both purposes but the fact is that most people hodl it for profit rather than using it for p2p transactions as a digital cash. Hopefully when it's adoption increases more, it's usage as digital cash can equal it's holding as a store of value. Bitcoin don't have to be a legal tender for a holder to do p2p transactions.

[hero_the_bossman]

Just like what @Pmalek, said, Bitcoin can be what you want it to be, it's a decentralized digital cash that has gained the reputation to become a store of value. There's nothing stopping a holder from utilizing their Bitcoin to be a digital cash for payment transactions and hodling it as a valuable asset to get ROI from it. Although Bitcoin was originally created to be a decentralized digital cash, an alternative to fiat, that gives it's holders privacy and freedom but because of it's potentials to always hit new ATH in it's bull seasons it now becomes a store of value. So Bitcoin serves both purposes but the fact is that most people hodl it for profit rather than using it for p2p transactions as a digital cash. Hopefully when it's adoption increases more, it's usage as digital cash can equal it's holding as a store of value. Bitcoin don't have to be a legal tender for a holder to do p2p transactions.

BTC hasn't become as convenient as other options for day-to-day operations - yet -.
But it sure makes a name for itself in both higher and lower places around the world.
And that is what matters - the adoption and recognition of BTC.

[Pmalek]

BTC hasn't become as convenient as other options for day-to-day operations - yet -.

And perhaps it never will become as convenient as using a plastic card, not to mention paying with cash. It's more complex, but it isn't an obstacle for someone used to working with a phone or computer. Technology is evolving and the newer generations aren't struggling with it. If they can get the hang of other things, they can learn the basics of bitcoin as well. The real question is, do they want to and will they see value in it? I think that adoption will continue increasing and we still have a long way to go.

[BALIK]

As I read on some online news outlet, seems like governments around the world are starting to recognize Bitcoin as investment, but most of them are still not use it as legal tender. Some policies also taxing Bitcoin profits and placing restrictions on using it as money show a predisposition to treat it like a risky investment or something to hold onto rather than everyday currency. While it seems Bitcoin has a very good chance of serving as a store of value, its use as actual official money, I think it won't happened in near future. I could say that maybe our children or grand children will be the one that enjoy decentralized global money, maybe Bitcoin maybe a new form of decentralized crypto. 

I don't even think it will happen in the future, as long as the government exists it won't happen because using a decentralized currency won't give them any benefits. On the contrary, it even threatens their power and makes it difficult for them to control their people.

Bitcoin is more suitable for investment and could also become a store of value in the future if it becomes more stable. As for whether it will become legal tender, I don't see any hope of that.

Not to mention, bitcoin is not perfect, transaction fees are unstable and the network is sometimes congested...these also make us feel uncomfortable using it as a payment method. So even if it were legal currency, I doubt people would use it more often.