Have you ever wondered why even after six years of invention, the decade’s most disruptive mode of payment has failed to gain public acceptance? Many would say that high volatility and scams and thefts are scaring away the masses – I too agree with them – but this article is about that one thing that mostly misses the list.
Bitcoin is not a financial asset, it’s a currency!
Bitcoin was never intended to be an investment-grade financial asset, on which you could employ a “buy low, sell high” approach. It was developed as a decentralized medium of exchange, which does not depend on third party processing, and magnificently outdoes the traditional payment methods in terms of cost, time, and reliability.
But, too much emphasis on the price of Bitcoin is only fueling speculative bets in the financial market, essentially contributing to the high-risk nature of the nascent technology. There are many investors who bought into the digital currency thinking that one day this “future currency” will gain mainstream adoption and put before them huge piles of cash. We all know how the prices have crashed, right?
This speculative, asset-based attitude is taking away the crucial chance from Bitcoin to cultivate into a true currency like USD.
The Gresham Law Explanation
In economics, there is Gresham’s Law which states that, “when you have two currencies, people tend to hoard the one with greater material value and spend the one with less material value.”
Considering this principle, if people have speculative expectations from Bitcoin and perceive it as an investment tool, they will hold on to it while increasingly using the US dollars to pay their bills, buy food and go shopping. As a result, Bitcoin loses another opportunity to establish itself as a mode of payment.
If you want something that appreciates in value, consider investing in stocks, real estate, and precious metals. The sooner the people realize this, the sooner they will spend Bitcoins in daily routine. I am sure Bitcoin-related companies, who are unaffected by price crashes, realized this a long time ago.