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That's an interesting analysis. I hadn't thought of it that way before, simply because I wouldn't really value any other currency that way. I.e. I would not co

That's an interesting analysis. I hadn't thought of it that way before, simply because I wouldn't really value any other currency that way. I.e. I would not consider the growth in the ability to use euros in additional countries to have much impact on their value. I guess my thinking is that as long as there are exchanges, you can buy anything with bitcoin just like you can buy anything with dollars. What sets that exchange rate is demand for bitcoins, and demand for bitcoins would be equivalent to what you can buy only with bitcoins. So, I guess in a way that tracks to exactly what you describe. The part that doesn't track is the profit potential. Currency speculation is an interesting thing, but it doesn't usually track with the use of a currency. I am pretty bearish on the long term viability for cryptocurrency growth, though. I expect transact in bitcoins about as often as I transact in any other currency...almost never. There are no wages, products, services, or geographic areas that require the use of bitcoin.

nostrademons 8y ago
Over the long term currency prices do track with currency use, where "use" is investment in securities denominated in the currency + a country's net exports. As the country's export economy grow, a foreigner can buy more things with the country's currency. The free-market value of the currency should rise. If it does not rise, then goods from that country will be underpriced relative to their true value, which means they will be overly competitive in the market, which causes a flood of cash into the country (a current-account surplus). Eventually the market rebalances as the currency becomes un-pegged and starts to float freely. This is what has happened with the U.S. and China over the last 3 decades. As Chinese goods became more competitive on the global market, American export dollars started to flow into China. China refused to remove the USD/RMB peg, which created a long-term current account deficit in the US and made American goods & labor non-competitive with China. When they finally did remove the peg (after significant political pressure from the US), the value of the RMB rose significantly: it was 1:8 a decade ago, it's now 1:6.73. Over the short term there are a lot of conflating factors - pegs, speculation, interest rates, wars, creditworthiness, etc. But over the long term, the "backing" for any currency is what you can buy with it.

nostrademons 8y ago

Over the long term currency prices do track with currency use, where "use" is investment in securities denominated in the currency + a country's net exports. As the country's export economy grow, a foreigner can buy more things with the country's currency. The free-market value of the currency should rise. If it does not rise, then goods from that country will be underpriced relative to their true value, which means they will be overly competitive in the market, which causes a flood of cash into the country (a current-account surplus). Eventually the market rebalances as the currency becomes un-pegged and starts to float freely. This is what has happened with the U.S. and China over the last 3 decades. As Chinese goods became more competitive on the global market, American export dollars started to flow into China. China refused to remove the USD/RMB peg, which created a long-term current account deficit in the US and made American goods & labor non-competitive with China. When they finally did remove the peg (after significant political pressure from the US), the value of the RMB rose significantly: it was 1:8 a decade ago, it's now 1:6.73. Over the short term there are a lot of conflating factors - pegs, speculation, interest rates, wars, creditworthiness, etc. But over the long term, the "backing" for any currency is what you can buy with it.