Is Bitcoin Money or a Speculative Commodity? - Brightwork Research & Analysis

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Executive Summary

Bitcoin has enormous marketing pushing it in front of people.
What is less discussed is whether Bitcoin can ever be money.

Introduction

Is Non-Governmental Control of Bitcoin a Good Thing as Bitcoin Enthusiasts Claim?

The fact that a government does not control Bitcoin is promoted as a major positive by Bitcoin enthusiasts, but it bodes poorly for Bitcoin’s future. Cryptocurrency enthusiasts promote the idea of government-less currency without realizing that the history of currencies without government support is deplorable.

Are Cryptocurrencies More Digital Than is Normal Currency?

Bitcoin cannot be referred to as digital money in this definition because nearly all money today is digital money. Instead, it is called “cryptocurrency” because it is limited in quantity by a cryptographic process where units are created through a computer-intensive “mining” process.

The Volatility of Bitcoin

Dean Baker brings up the following issue with the volatility of bitcoin.

One of the main features that we value in a currency is stability. This is the basis for the obsession of the Federal Reserve Board and other central banks with inflation. While they have often carried their concerns about inflation too far, needlessly slowing the economy and throwing people out of work at the first vague hint of accelerating inflation, there is a real logic to their concern.

Even less serious rates of inflation can be a problem. Certainly, the inflation the United States saw in the 1970s was a problem. It peaked at just over 10 percent at the end of the decade. This inflation did not cause the economy to collapse or even stop growth altogether, but it definitely made planning more difficult, and perhaps more importantly, led people to believe they were being cheated as their pay increases were quickly offset by rapid rises in prices.

The story with Bitcoin is the exact opposite. The value of Bitcoin has been soaring, not plummeting. But if we think of Bitcoin as a currency, this means that we are seeing massive deflation. The price of items measured in Bitcoin is going through the floor.

To make this concrete, suppose someone signed a five-year lease in Bitcoin, where they agreed to pay two Bitcoins a month for office space. (Five-year leases are common for commercial properties.) At the start of their lease in 2016, they would be paying an amount equal to less than $800 a month. Today, they would be paying over $100,000 a month for the same space. Anyone who committed to this rent would either have been forced into bankruptcy or renegotiated the lease.

Imagine the same story with a wage contract. Suppose a union had negotiated a contract where its members were paid two Bitcoins a week in 2016 with an inflation clause that provided for 2 percent raises a year. If this had been a five-year contract, these workers would now be earning well over $100,000 a week.

And on bitcoin being somewhat similar to a trading card, but less useful.

It’s still hard to not see these prices as the result of bubbles, since it is difficult to see anything like this much intrinsic value in other a sports trading card or Bitcoin. The sports trading card has the advantage in this area, since at least it is something, whereas Bitcoin is quite literally nothing.

Source: CEPR

https://cepr.net/bitcoin-and-baseball-cards/

What Bitcoin Enthusiasts Say

Bitcoin enthusiasts think they are rebelling against government currencies, but they actually have experience with a private bank-issued currency.

What Bitcoin Enthusiasts Don’t Say

Bitcoin is very elite controlled. People at the originator level or insider level of Bitcoin and other cryptocurrencies stand to make a lot of money.

Real Story on Banking’s Position on Bitcoin

It took a while for us to figure out Bitcoin and cryptocurrencies in general. Bitcoin is based upon blockchain technologies, which are a washout in the technology sphere and have mostly been used to sell dead-end blockchain projects. This is something we covered in the following article.

Source: Brightwork Research & Analysis

https://www.brightworkresearch.com/is-blockchain-all-that-innovative-or-is-it-being-overhyped/

So the underpinning technology is a type of tech hype. However, cryptocurrencies sound appealing and are based upon the truth that private banking interests have taken over the money creation function in many countries and that the banks are run for the benefit of the elites. And that banks have stopped following any public interest function and only exist for profit maximization. This is entirely true and should be addressed by pushing private banking out and replacing it as much as possible with public banking that serves the public interest rather than connected elites.

However, a non-government-supported currency that is “distributed” through many online ledgers is not a solution to this problem. Secondly, cryptocurrencies are not actually currencies. They are speculative digital commodities that have large fluctuations in value. And once viewed in this context, it becomes easy to see that cryptocurrencies are not and cannot be currencies.

The Inverse Relationship Between Liking Bitcoin and Knowledge of the History of Money

There is a consistent feature around the topic of cryptocurrencies that the deeper one understands money and its history, the less positive one tends to be about cryptocurrencies.

How Bitcoin Enthusiasts Take Advantage of the General Poor Understanding of Money

The problem with most of the coverage around Bitcoin is that the authors of these articles normally do not understand the history of money, the difference between money and a commodity, and how money functions. Bitcoin enthusiasts are taking advantage of this lack of understanding of a complex topic and can’t be very well understood by reading mainstream economists, who surprisingly don’t spend time researching the history of money. Money functions as a complexity that economists eliminated from their models using barter as a synonym for money.

An Excellent Source on Whether Bitcoin Can Be Money

One of the people that best understand currencies is Steve Keen.

According to Steve Keen, Bitcoiners are trying to create a trustless currency, which has never existed. Bitcoin enthusiasts say that trust is replaced with distributed digital registers. However, that is redundancy, which is not the same thing as trust.

This is explained in the following article.

Source: Brightwork Research

https://www.brightworkresearch.com/what-is-the-real-story-with-bitcoin/

Steve Keen elaborates on Bitcoin in the following video.

Source: Steve Keen

This is a video where Steve Keen explains Bitcoin.