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One way that I've been thinking about this is to define money as something that facilitates economic activities that's some multiple of its total value and use
by a_square_peg 5y ago
One way that I've been thinking about this is to define money as something that facilitates economic activities that's some multiple of its total value and use it as a litmus test to see if something is functionally money or not. If it's the other way around, where the total value exceeds the economic activities by many multiples, it should be classified as an asset.
For instance in some situations, cigarettes or packs of ramen are performing the role of money when it facilitates some economic transaction denominated by it. For dollar, you can see how the US GDP is many multiples of total value of dollars available and the same goes for the Euro too.
On the other hand, stocks, real-estates, and gold are all assets by this definition. For instance, gold has market cap of ~$10T but the global gold market is perhaps something like $500B/yr - say from extraction to retails.
By this definition, Bitcoin is closer to asset than money. If it were close to being money, the value of economic activities facilitated by Bitcoin would be in multi-trillion dollar range and I just don't see that happening anytime soon. Of course, this doesn't say anything about its value as digital asset of some sort but I think the rhetoric of cryptocurrency as money doesn't really hold.
- vishnugupta 5y agoThis is a good mental model which I use from time to time to evaluate if something is money or not. > stocks, real-estates, and gold are all assets So what infers the quality of "asset" on these things? IMO it's their intrinsic use value. E.g., I could build a house to shelter me on a land, gold could be used to build electronics, stocks generate cash flow. Most of these assets are natural resources which humans need to lead a good life. So there is a natural demand for these resources regardless of whether they are used as currency or not. Said this way, I just don't get what's the intrinsic use of a bitcoin? I totally get the intrinsic use of ETH; I could use it to execute a smart contract i.e., it's a currency to get some computation done. What is the natural demand driver for bitcoin? I just don't know.
- a_square_peg 5y agoYeah, I think the economics of Bitcoin is fascinating to watch. Been curious too what the market price of it would be if one took out the speculative aspect.
- tenuousemphasis 5y agoA few things. 1. Money already has a definition, a generally recognized medium of exchange. Gold and bitcoin are mediums of exchange, but they are not (yet, in bitcoin's case) generally recognized. 2. How do you define the market cap of dollars? 3. Market cap is a really poor measure of just about anything. 4. The concept you're referring to is related to the velocity of money[1]. [1] https://www.investopedia.com/terms/v/velocity.asp https://www.investopedia.com/terms/v/velocity.asp