Back in 1875, the economist William Stanley Jevons described the functions of money as [*]:
- It is a medium of exchange - you give it up when you buy goods or services, and you can receive it when you sell goods or services;
- It is a unit of account - you can measure the value of something using the amount of money it is worth; and
- It is a store of value - you can keep it and it will retain its value into the future.
Since the introduction of Bitcoin in 2009 (if not earlier), there has been an ongoing debate about whether Bitcoin (and other cryptocurrencies) are money. I've blogged on this topic before (see here and here), and to me it is pretty clear that cryptocurrencies are not money. For one thing, their value is too volatile to act as a unit of account. Second, whether they are a good store of value is questionable. Just ask anyone who held TerraUSD or Luna cryptocurrencies in 2022. And, does anyone use Bitcoin as a medium of exchange?
That last question was addressed in this recent article in The Conversation by John Hawkins (University of Canberra):
The whole point of Bitcoin, as its creator “Satoshi Nakamoto” stated in the opening sentence of the 2008 white paper outlining the concept, was that:
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.
The latest data demolishing this idea comes from Australia’s central bank.
Every three years the Reserve Bank of Australia surveys a representative sample of 1,000 adults about how they pay for things. As the following graph shows, cryptocurrency is making almost no impression as a payments instrument, being used by no more than 2% of adults.
You can go to the article to see the graph that Hawkins refers to, but the point is clear. While around 65 percent of Australians have used PayPal to make a payment in the previous 12 months, only 2 percent of Australians have used cryptocurrency to do so. But it's not just Australia:
These findings confirm 2022 data from the US Federal Reserve, showing just 2% of the adult US population made a payment using a cryptocurrrency, and Sweden’s Riksbank, showing less than 1% of Swedes made payments using crypto.
So, if people aren't using Bitcoin as money, why do they have it? Hawkins notes that:
But most people buying Bitcoin essentially as a speculative token, hoping its price will go up, are likely to be disappointed. A BIS study has found the majority of Bitcoin buyers globally between August 2015 and December 2022 have made losses...
UK government research published in 2022 found that 52% of British crypto holders owned it as a “fun investment”, which sounds like a euphemism for gambling. Another 8% explicitly said it was for gambling.
Bitcoin still isn't money. People simply aren't using it in that way.
*****
[*] Jevons noted a fourth function, a standard of value (a way of valuing debts), which we now consider to be much the same as a unit of account.
Read more:
No comments:
Post a Comment