{"id":8041,"date":"2020-02-04T18:18:41","date_gmt":"2020-02-04T16:18:41","guid":{"rendered":"https:\/\/forklog.media\/?p=8041"},"modified":"2020-02-04T20:09:34","modified_gmt":"2020-02-04T18:09:34","slug":"what-is-bitcoin-internets-native-money-hedging-instrument-or-asset-for-speculation","status":"publish","type":"post","link":"https:\/\/u1f987.com\/en\/what-is-bitcoin-internets-native-money-hedging-instrument-or-asset-for-speculation\/","title":{"rendered":"What Is Bitcoin: Internet\u2019s Native Money, Hedging Instrument, or Asset for Speculation?"},"content":{"rendered":"

At the end of the last year, the G7 released a <\/span>report<\/span><\/a>, reading that Bitcoin and other cryptocurrencies \u201chave so far failed to provide a reliable and attractive means of payment or store of value.\u201d<\/span><\/p>\n

<\/p>\n

The authors of the report believe that cryptocurrencies are excessively volatile and difficult to use, suffer from scalability problems, and face regulatory risks.<\/span><\/p>\n

An American billionaire Ray Dalio, founder of investment firm Bridgewater Associates, <\/span>said<\/span><\/a> that the first cryptocurrency is a speculative asset and isn\u2019t effective for payments or store of value.<\/span><\/p>\n

We try to find out if Bitcoin is able to be money and what is it, exactly: the internet\u2019s native money, a hedging instrument, or an asset for speculation?<\/span><\/p>\n

Bitcoin and Monetary Economics<\/span><\/h2>\n

Regulators far and wide still haven\u2019t reached a consensus regarding cryptocurrencies. Everyone has their own interpretation as to the nature of this phenomenon. People put Bitcoin in one line with payment instruments, commodities, and all sorts of things. Some governments even go for an outright ban on digital currencies because of their utility to speculators and criminals.<\/span><\/p>\n

Before trying to answer if Bitcoin is anything like money, we should get a grip on some of the basics of monetary economics.\u00a0<\/span><\/p>\n

Money is defined by its functions as:<\/span><\/p>\n

    \n
  1. A unit of account that helps setting prices and therefore trade.<\/span><\/li>\n
  2. A medium of exchange. It is important that money is liquid, meaning that it is easy to exchange it for any other good for a near-market price.<\/span><\/li>\n
  3. A means of payment useful in fulfilling debt and other obligations. Some economists believe that the line between \u201cmeans of payment\u201d and \u201cmedium of exchange\u201d is fuzzy, so these two functions can be combined into one.\u00a0<\/span><\/li>\n
  4. A store of value, which is an equivalent of value recognized by economic agents. Currency, but also precious metals, stocks, bonds and other financial instruments can act as a store of value. Works of art, real estate, and cryptocurrencies can also be a store of value.<\/span><\/li>\n
  5. World money that caters to the transfer of value within the international economic turnover.<\/span><\/li>\n<\/ol>\n

    Bitcoin can be reasonably effective in all five functions of money.<\/span><\/p>\n

    Despite its volatility, the first crypto is demanded as a unit of account and a medium of exchange in Venezuela, a country struck by hyperinflation where prices for goods can change over one day.<\/span><\/p>\n

    Bitcoin is also used as world money by those who pay freelance specialists across borders. It is an alternative to slower, more expensive, and at times unavailable bank transfers. Moreover, as the market for cryptocurrency loans develops, Bitcoin and other digital assets are adopting the function of a means of payment.<\/span><\/p>\n

    The first cryptocurrency works well for diversifying one\u2019s investment portfolio. Over the years, Bitcoin price generally grows, so it can be a store of value<\/span><\/p>\n

    On the other hand, Chainalysis\u2019 research <\/span>shows<\/span><\/a> that just over the first half of 2019 users spent about $515 million on illegal marketplaces. The largest such marketplace is Hydra and the most popular goods are drugs. Notably, Bitcoin is more popular with such platforms than Monero, an anonymous cryptocurrency criticized for being instrumental in illegal operations.<\/span><\/p>\n

    Money as a medium of exchange is as good as its purchasing power. This power isn\u2019t necessarily dictated only by things like the factual value of gold that makes a coin or backs a banknote. It can also be defined by the trust of those who hold the money.<\/span><\/p>\n

    Bitcoin\u2019s Advantages Over Traditional Money<\/span><\/h2>\n