Sep 6, 2018Â â‹…Â 3 min read
Like anything in a market economy, the price of Bitcoin is entirely dependent on supply and demand. A money that’s abundant will tend to have less demand and a money that’s scarce will tend to have larger demand. The main reason why people value Bitcoin ($BTC) is that it is scarce, hard money. The people that value Bitcoin’s scarcity are using Bitcoin as a store of value. Furthermore, Bitcoin is also hard to confiscate and is unique among assets in this regard. There really aren’t that many options that are provably scarce and are resistant to confiscation.   The method of payment use cases have one thing in common. The people involved want the convenience that Bitcoin provides them, but don’t care to hold the Bitcoin itself. In method of payment transactions, neither party holds Bitcoin for very long and neither cares about the Bitcoin price as long as the total fees (USD →BTC, BTC transfer, BTC →USD) are reasonable. Convenience is what matters. Conversely, method-of-payment demand does not actually increase demand much for Bitcoin as the amount bought is sold soon after. The only real benefits of having more method-of-payment utility are that Bitcoin can increase convenience and Bitcoin’s liquidity can increase.   The reason why people value Bitcoin as a store of value more than as a method of payment is that consumers have many choices for method of payment already. Furthermore, all these payment methods are much more convenient than Bitcoin for nearly every type of transaction. For method of payment, convenience is paramount and that means merchant acceptance. However, merchants don’t want to keep Bitcoin which hinders its use as a method of payment, as conversion from BTC to USD is costly. It’s much less convenient and thus an inferior method of payment.   Trying to artificially create method-of-payment demand is putting the cart before the horse. First, the vast majority of people that hold Bitcoin aren’t looking to use it as a method of payment. Second, the merchants don’t want to keep the Bitcoin they receive.   From a monetary evolution standpoint, a few conditions have to be met before people start using a hard money as a method of payment in earnest. First, the merchant has to want the particular monetary medium as a store of value. Second, the consumer has to desire the good or service so much that they’re willing to part with their precious Bitcoin. In other words, the merchant has to want Bitcoin as a store of value and produce higher quality goods to entice Bitcoin holders. Until this gap closes, there won’t be much Bitcoin flowing from holders to merchants.   When paternalistic interventionists act on wishful thinking instead of letting the market play out, disaster looms. Increasing method of payment adoption, however, doesn’t change merchants' desires. At best, this results in selling pressure on Bitcoin, lowering price.
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