Hypothesis on Valuation of Purely Monetary Assets

It's easy to understand why oil, silver, land, or even a share of equity in a company have inherent value. These things either are, or posses wealth of some form or another, the tangible things we all actually care about.

When examining why currency has value, we require different considerations. Obviously, the basic properties of money to make it viable for faciliating the exchange of actual goods and services: Scarcity, durability, divisibility, portability, fungibility, identifiability. Now it may be that some monies are better suited for certain usecases than others; but regardless of the medium, it inherently derives value from facilitating the exchange of real goods and services. If it's also a commodity (like silver), then that becomes a factor too.

And this is where we come to Bitcoin. At one point, Bitcoin had growing usecase as a medium of exchange. Retailers were adopting it. People were making payments with it. In as much as it facilitated the exchange of real goods and services, combined with possessing at least some of the properties that money needs to have, Bitcoin had a claim to some form of inherent value.

Now? Bitcoin is accepted by fewer retailers than before. It faciliates less exchange of real economic wealth, EXCEPT FOR speculation. Now don't get me wrong, casinos run some serious business, basically as an entertainment service. So there's that, and perhaps that's enough to actually justify Bitcoin (and the, ahem, othercoins) price levels. But this notion that Bitcoin is somehow digital gold I think falls flat.

Gold obtained its position as a global reserve asset over thousands of years of facilitating actual economic wealth exchange. Due to this inherent integration, it had relatively stable value over long periods of time, could be used as a unit of account for economic calculation, and again, faciliate real economic exchange. It did this so well that it naturally became the global reserve asset, and was used as the basis for entire economic systems, banks, notes, and gasp … fiat. Yes much of it was fraudulent, but it was at least functional enough to support the global economy that has developed today. Even now, the central banks with the largest (admitted) gold reserves have the most dominant currencies (even if debased and manipulated).

Bitcoin at its current technological level could in no way match the global trade volume or velocity of gold. The scaling solutions are starting to sound like a pipe dream. It lacks fungibility. Access to mining equipement is controlled by a few narrow corporations, and still 50% exists not just in one nation, but in just one provice of that nation. It's barely used for any real economic exchange, other than casino style speculation.

And lets say that their narrative even plays out. Bitcoin becomes digital gold, and it gets scooped up and stored largely in the (cold) vaults of global banks. How the fuck does that help you or I participate in an economy based on an honest money system, when those "Bitcoin reserves" will just be used to augment the existing fraudulent fiat system, while becoming less liquid (for ordinary use) over time? With little ability to be use by normal people and companies for actual commerce and exchange?

I posit that Bitcoin's price is now based on the speculative frenzy that central banks will eventually adopt it as a reserve asset (as well as heavy price manipulation). I'm not really convinced whether that plays out or not. Perhaps it is the long term get rich wet dream that the TrueBelievers keep saying. But given the reality that it facilitates almost no real exchange of goods and services (other than gambling), can't possibly meet the velocity/volume of global gold trade, and has critical technological shortcomings, I am having a harder and harder time ascribing real economic justification for its valuation.

*Disclaimer: I haven't asiduously done the maths and calculations on what volume of Bitcoin is used for, and where. I'm going by a scientific WAG (wild ass guess), given what appears to be the case, on the basis of watching this unfold for 6 years now.

Perhpas I'm a bit jaded or biased. Or perhaps these flaws are even welcomed by those who seek to manipulate currency systems to their benefit. The ethical flaws of the Federal Reserve are probably largely the reason why that system was adopted. I am still open and/or willing to accept that central banks and corps might make Bitcoin a reserve asset, despite its flaws.

But at this point, other than getting rich on the speculation and manipulation swings, I'm not sure how much any of that actually helps create an honest alternative monetary paradigm.

submitted by /u/bawdyanarchist
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