Bitcoin is neither money nor the “new gold”, but a speculative asset

Bitcoin is a medium of exchange because it is a peer-to-peer electronic system, but it is very inefficient.

Bitcoin is a better fiat currency or an alternative to cash, but it’s not cash yet.

JP Morgan said: „Gold is real money, the rest is decree money.“

In short, Bitcoin is the new “fiat currency” or the new “liquid” of millennials. The only asset that can be called “silver” in the long term is gold.

What is money?

In Chapter IV of his major work “The Wealth of Nations” (1776), Adam Smith, considered the father of modern political economy, describes precisely the technical definition of money. Money is basically defined as a unit of account, a means of payment and a store of value.

Adam Smith explains how gold quickly became the standard currency. In addition to being a scarce resource, the chemical element gold (Au) is immutable over time. Subsequently, its physical appearance and malleability popularized it as a universally recognized form of money.

Bitcoin: is it money?

My simple and categorical answer is: no. In its current form, Bitcoin fails to be money on almost every level:

Account unit

Bitcoin is not a unit of accounting because the benchmark value of 1 BTC in 2009 is absolutely different from that of 1 Bitcoin today. Bitcoin cannot be used as an accounting measure, as the “meaning” of 1 BTC a few years ago is drastically different from that of 1 BTC today.

Payments with Bitcoin

Very few goods and services are priced in Bitcoin because to reflect their value, they would have to constantly change in price or incur significant accounting risk. Generally, goods and services that “accept” bitcoin, do not accept BTC as a unit of account, but display a price in local currency and “can be paid for with their bitcoin equivalence”.

Store of value

Bitcoin is not a store of value because its fluctuation is very independent of inflation indicators. On the contrary, it tends to fluctuate on the basis of speculation with large variations in purchasing power from day to day. Bitcoin suffers from extreme volatility:

For example, in 2009 you could mine a Bitcoin for pennies on the dollar of electricity cost, say $ 0.05. As of December 2017, the price of Bitcoin was $ 19,166.

Do not confuse: “price appreciation and speculation” with “store of value”.

In January 2018, a month after the peak in December 2017, however, Bitcoin was priced at $ 9,192. As of December 2018, it stood at $ 3,194.

In the long run, Bitcoin has not been proven to be a store of value. It even showed the opposite, being an asset with price instability and high volatility.

I would not recommend anyone to put all of their savings, rent, or money in Bitcoin as it is not possible to know if the value of BTC will remain stable in one way or another.
Bitcoin is above all a speculative asset.

Bitcoin as a payment method

Bitcoin is a medium of exchange because it is a peer-to-peer electronic system, but it turns out to be very poorly performing.

Visa and Mastercard Bitcoin

Bitcoin can execute an average of 4 transactions per second. By comparison, Mastercard or Visa systems are capable of executing 24,000 transactions per second. In terms of medium of exchange, it is therefore much inferior to current payment systems, although it is a new technology.

Is BTC collectible?

Bitcoin’s new price discovery process suffers from a lack of transparency in the stock market order books (many of which are unregulated) and a lack of liquidity. This is because Bitcoin is concentrated in the hands of only a few ( 2% of wallets control 95% of all bitcoin).

Bitcoin is therefore prone to sudden drops due to the lack of simultaneous buy and sell orders.