The Implications of Volatility in Bitcoin\'s Value and its Effectiveness as a Me

Question

The Implications of Volatility in Bitcoin's Value and its Effectiveness as a Medium of Exchange

The distinguishing characteristic of anything that qualifies as an asset is that it can be used to transfer current resources into the future (i.e. as a store of value). Fiat money is an asset since it can be used as a store of value or vehicle for transferring current resources into the future. In order for fiat money to be used as a medium of exchange it must be held even if for a very short period of time. This implies that anything (such as hyperinflation) that interferes with fiat money's efficacy as a store of value will affect people's willingness to hold it and thereby its effectiveness as a medium of exchange. Is bitcoin an asset? If so what are the implications of volatility in its price for people's willingness to hold it and thereby its effectiveness as a medium of exchange? Please provide reasons for your opinions or conclusions.

Need some insight on this without it being copy and pasted from another website which i could do! Thank you!

Explanation / Answer

Initially the way government or state would guarentee the value of currency was to peg it with gold, This was the most important practice that stayed on for 100's of years.

Later on after the great economic crisis in 1930's many countries have stopped pegging gold with their currency.

The fiat currency just depends on trust of individuals on the institutions of the country like federal reserve. If people loose faith in such institutions the value of fiat currency almost drops immediately.

We are living in terrible world right now, No country can guarentee value of its currency, This includes United States, Excessive printing of currency will lead to hyper inflation. US dollar holds its value because of just one thing. It is global reserve currency for now.

Bitcoin on other hand is a global medium of exchange that can be accepted and bought by individuals. It is very different system where computer algorithm creates money in limited number, The real value of bitcoin will depend on weather people trust the insitution bitcoin.

The entire global economic system runs on our trust in countries institutions, Some countries do terrible job in maintaining their fiat currency. For example Zimbwabwe had just printed 100 trillion dollar bank note

FYI: US economy is 13 trillion dollars and now you have 100 trillion dollar bank note that might not even buy you a burger.

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