Post
Topic
Board Economics
Re: Some dilemma regarding investments and social welfare in an all bitcoin economy
by
jerye
on 23/05/2013, 05:13:52 UTC
You're forgetting the obvious: investing is risky. No investment is guaranteed to give a positive return. In a perfect market, the price of an investment is equal to the expected return multiplied by the expected probability that it will actually deliver that return. Companies (and individuals) will invest if they believe (possibly with good reason) that a particular investment is less risky (or would give a greater return) than what the rest of the market believes.

Take Bitcoin for example. I, personally, believe Bitcoin is grossly undervalued. It has the low value that it has because most of the market believes that is very risky, and unlikely to generate good returns. I, on the other hand, do not think it's as risky as people say it is, and that it has the potential to generate fantastic returns. So I invest in it. All other investments are bought for ultimately the same reason.

Lets include investment risk in the model. Combine this risk with the fact that money will not expand the next period and you get an even stronger case for the 0.9 currency individual to NOT invest in improving goods for the next period. Why would he? The most he can get is a smaller part of that 0.1 currency left and even that is uncertain (risky).

I myself believe that Bitcoins are undervalued and so I have them. In my model above however, we use a currency (may or may not be bitcoins) as money which facilitates transactions, not as an investment tool/commodity.