To paraphrase, you’re pointing out that stocks and precious metals come with built-in demand shock absorbers, whereas Bitcoin has none. I’m not totally sure that I accept this point, because I could see alternative cryptocurrencies playing the role of marginal new stocks or newly mined gold. However, even if Bitcoin were unique in having no demand shock absorbers, I’m not sure this matters, because it seems empirically to be the case that these shock absorbers are not always up to the task, and that both stocks and precious metals do experience a great deal of price volatility, even over the medium to long term.
In other words, even if Bitcoin is especially sensitive to changes in demand, it is neither novel nor unique in being susceptible to bubbles.
This would seem to me to imply that Bitcoin’s existence and use as a store of value is no threat to the economy. (And its use as medium of exchange seems harmless as well.)
It would seem that problems would only arise for those who try to use Bitcoin as a unit of account. This is in line with Wei’s comment where he suggests that with a currency in fixed supply, fluctuating velocity of money implies that either prices or GDP must be unstable.
So my conclusion is that using Bitcoin as a medium of exchange or store of value is not detrimental to the economy, but one should continue to price goods or services in some other fiat, ideally NGDP-targeted, currency. Does that sound about right?
Anyone bidding on a Bitcoin is not bidding on a productive project.
It seems that the same goes for gold, real estate, and so forth when they are used as a store of value. The difference is that unlike bitcoin, these things have other productive uses that they could be put to, less expensively, if they weren’t being used as a wealth-counting mechanism.
To paraphrase, you’re pointing out that stocks and precious metals come with built-in demand shock absorbers, whereas Bitcoin has none. I’m not totally sure that I accept this point, because I could see alternative cryptocurrencies playing the role of marginal new stocks or newly mined gold. However, even if Bitcoin were unique in having no demand shock absorbers, I’m not sure this matters, because it seems empirically to be the case that these shock absorbers are not always up to the task, and that both stocks and precious metals do experience a great deal of price volatility, even over the medium to long term.
In other words, even if Bitcoin is especially sensitive to changes in demand, it is neither novel nor unique in being susceptible to bubbles.
This would seem to me to imply that Bitcoin’s existence and use as a store of value is no threat to the economy. (And its use as medium of exchange seems harmless as well.)
It would seem that problems would only arise for those who try to use Bitcoin as a unit of account. This is in line with Wei’s comment where he suggests that with a currency in fixed supply, fluctuating velocity of money implies that either prices or GDP must be unstable.
So my conclusion is that using Bitcoin as a medium of exchange or store of value is not detrimental to the economy, but one should continue to price goods or services in some other fiat, ideally NGDP-targeted, currency. Does that sound about right?
Using it as a store of value is detrimental. Anyone bidding on a Bitcoin is not bidding on a productive project.
It seems that the same goes for gold, real estate, and so forth when they are used as a store of value. The difference is that unlike bitcoin, these things have other productive uses that they could be put to, less expensively, if they weren’t being used as a wealth-counting mechanism.