+1!!

Earlier posters are right.  The free market should set the USD/BTC exchange rate precisely at the point where it makes equal sense to spend both.  If BTC were going up in value and the dollar down, for sure, then BTC's current price would go up to reflect that.

However...  we can still talk about differences in the scenarios in which one or the other currency has a guaranteed government monopoly.  Then, their adoption leads to different behavior.

IF there is only one form of money and it is frequently, artificially, and arbitrarily inflated by a governing body that looks out only for itself, THEN people will spend that money faster.  If bitcoins were the national currency and USD were like bitcoin, scrounging around in a few tiny corners of the economy looking for shelter from banks and senators, then people would save more and spend less.

Except that it won't go up in value.

His whole comment is speculation, trying to leverage up the value of Bitcoin while it's true consumer value is 1$ at most.

To sum up this thread, people are using Dollars, backed by Bitcoin, choosing to do that instead of using the Dollar backed by Gold.   However, we all should just switch to Bitcoins backed by Gold, hoard the Bitcoin, spend the Gold, the USD is now completely useless? 

Actually, isn't that what a lot of people want out of Bitcoin.  I prefer having many forms of currency lol.  I am fucking around, but I see some interesting points here and will now just go into lurk mode, the way the daily/hourly/by the minute (multiple) exchanges of Bitcoin works makes old school way of thinking on currency a little different imo, so older theories and maybe even things that were known as true are adjusting.

A divisible and fungible asset like a currency can never be "too valuable to spend", since by definition you get the value of the amount you spend. By virtue of comparative advantage, from your point of view it's at most as valuable as the things you decide to buy.

What interferes with the spend decision of the holders are those pesky deflationary expectations everybody rants about, and that somehow "don't apply" to bitcoin. If an asset is expected to rise, people will hoard it given the choice. It's only human to aim for realizing the gains of your most productive assets. You will always slaughter the old cow, not the gestating one.

For a non-productive asset like bitcoin the expectations are purely speculative (if they were technical the efficient market would have corrected the price up). So the correct title of the thread is Bitcoin too hyped to spend: captures both the deflationary aspect and the speculative mania aspect.

Gresham's law does not apply because the government does not force a certain $/BTC parity (or anybody else for that matter).



I believe the time scale is to small to actually see a direct correlation between the ~0% M1 increase in 2006-2007 and the inflation in those years. Just like deflationary expectations, there are inflationary expectations. People expect to have their paychecks increased yearly, and this eventually goes into the price of goods and services, regardless if no more currency was injected into the market. I think our old friend Milton would say that inflation is always a monetary phenomenon and if printing stops, so will inflation, eventually. So the 2007 inflation was made possible by earlier printing.

Time preference means some investors will exhaust their patience and cash out.

Also, newbies that brought into bitcoin will have an irrational aversion to loss, which explains the current price stability.

Let not forget that investors' return is dependent on the size and growth of the economy so some will be interested in boosting productive capacity of the economy.

Spending on needs(food, clothing, shelter) isn't really a "choice" in the economical sense. Choice is more like buying a new TV or having a $40 meal. Those are not needed for survival.

precisely.

while the OP notes that:


...he neglects that which has the most impact on that calculation:  what can one afford?

in my line - rare books - this is a common question, with a simple answer.  if one buys a group of rare books - from an estate, for example - one is left with the question of how to sell them, and there are really only two choices.

1.  sell the very best books first - they will sell more quickly and for more money.  you will get your investment back sooner, pay your bills, and take your profit from the crappy books afterwards.  the problem here is that you are depending on profits from merchandise of lesser quality - it frequently doesn't work out that way, and you're stuck with crap.  or,

2.  sell the crappy books first.  it'll take longer, and you'll have to find some way to eat and pay the rent until they sell - but when you're done with those you'll have the very best stuff to sell, which should give you your profits in larger sums (always good).  the drawback here is the vagaries of the market; books tend to fluctuate in value, as most luxuries do.

so the answer here is the same:  what can you afford?

Postulate:  as the economy of the world deteriorates, Bitcoin will do better as a medium of exchange and become less of a value store or speculative medium.

It's nonsense, for two reasons:

1) If it was correct, it would apply equally well in the other direction. If a merchant accepts both Bitcoin and fiat currency, people will always prefer to pay with bitcoin simply because the equivalent bitcoin is seen to be more valuable and thus the merchant will be willing to accept a lower price.

2) It contains the oxymoronic claim that that the "equivalent" bitcoin will be "seen to be more valuable". If it's seen to be more valuable, it's not the equivalent, it's less than that.

The reason people hoard gold (and people may hoard bitcoin for the same reason) is that they irrationally believe it will increase in value (or, equivalently, that their fiat currency will decrease in value) more than other people do. So they think others are underpricing its future value today. However, there are also going to be people who think bitcoin will blow up any day now, so they will think others are overpricing its future value.

In any event, hoarding is a fact that influences the price of a currency, but that influence is to increase its value. Scarcity isn't a problem with bitcoins because they are divisible.

Of course it can. Lots of people here would not sell bitcoins at the current exchange rate because they think it's too low, so why would they spend them for something using the exchange price as reference? Unless they have no fiat currency it would be irrational, because converting fiat to bitcoins has a fee. It's more economical to use the fiat.