I'm just reading an article in the newspaper. Klaus W. Wellershoff (a last chief in UBS Bank) says that's impossible to use a currency with volatility as money. If the value of the money decrease, that means the value of the merchandise decrease. For example : if you buy a flat with bitcoin and few years later the bitcoin value decrease... Your flat lose his value as well.
What do you think about this argument?
Although the argument that a cryptocurrency with too much volatility cannot be used as money has its merits but the volatility seems to matter only because we are comparing the value of bitcoin against fiat. In a scenario where bitcoin is actually working as currency, there will be need for a set of indices standardized by calculating amount of common goods that, say, 1 BTC should buy. Such an exercise would either need regulatory intervention or bitcoin adoption would have to go widespread with merchants deciding this value governed by free-market competition.
This is when volatility would not really matter.
The problem with this mindset is that, if let's say a governing body has set a standard calculation for how much goods a
BTC can buy, and according to you, we'll eliminate the need of fiat so volatility won't matter. Keep in mind that bitcoin is deflationary in nature, only limited of its supply can ever be mined. That means, the fewer the supply left, the higher the value of 1
BTC will be, the more it can buy. Sounds good right? Well, not really. Having a currency with too high value would just cause people tend to not spend a lot of the currency, or just hoard. Then, economy slows down, no one wants to use their money since it's too valuable.