Quote from: jaysabi on October 05, 2017, 09:43:01 PM

Quote from: hairballin on October 05, 2017, 06:00:27 PM

I'm new to the Bitcoin / Cryptocurrency world, and the economics are pretty interesting.. My question is more of a large-scale economics question.

Would using Bitcoins, to purchase goods (not on this forum) or services, increase its perceived value due to wider exposure or level-out/decrease its perceived value by establishing an accepted value of it?

I hope that was clear enough. Just looking for ideas and thoughts.

It's a good question, it's nice to see someone thinking rationally about the economics of bitcoin and asking an intelligent question. I see bitcoin transactions as essentially neutral in terms of whether they create or destroy value. On the one hand, buying bitcoins to spend at a merchant creates upward pressure on the price. Once spent, however, the merchant is likely to instantly liquidate the bitcoin into USD, because bitcoin has a low utility for actual commerce. It does no good to hold a currency the vast majority of the economy doesn't accept and when the rest of the economy conducts business in USD. There's also substantial risk of losing the profit of the transaction due to bitcoin's intense volatility, so all the incentives for merchants are to exchange immediately into USD, and this puts an equal amount of downward pressure on the price. I see commerce playing a negligible role in the actual value of bitcoin, all this up and down is related primarily to speculators.

Thank you for the informative answer, that all makes sense. So then a widespread Bitcoin usage would require near-zero volatility? How can that be achieved if most vendors/merchants are quick to liquidate to fiat?

hairballin

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