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The Great Bitcoin Inflation
A lot of ink has been spilt about Bitcoin and other cryptocurrencies. I can’t pretend to understand the math, so I write only about the economic impact of the device. I can pretend to understand that.
Bitcoin is a very special asset.
Bitcoin is not a currency. A currency must expand in supply to meet the supply of goods and services in the economy. Bitcoin creation is wholly disconnected from the goods and services money can buy. So it cannot be a currency.
Bitcoin can be used to transfer money. The transferor buys BTC with his local currency and sends them to the recipient. The recipient sells the BTC for his local currency. But people who use Bitcoin to transfer money don’t care how much BTC cost. So long as the BTC hold their value for the short time it takes to buy, transfer and sell them, the transferor and transferee aren’t affected by the price of one BTC. The higher the price goes, the fewer BTC they must use to move a given amount of fiat currency. The price just doesn’t matter.
Users’ indifference to the price of BTC make its asset class unique. Holders — they’re called “HODLers,” as in “Hold On for Dear Life” — can bid up the price of BTC without any fear of pricing users out of the market. Owners of assets such as real estate or money must…