Is Bitcoin an Asset a Commodity or a Currency?
updated on:8 Nov 2020
Bitcoin has been labelled a currency, a commodity and an investment. There are proponents and detractors on both sides.
The growth in futures trading as a proportion of Bitcoin's trading volume suggests most regard it as a commodity over a currency.
Bitcoin has been called many things over the years: digital money, digital gold, a sham, an investment, an asset, the end to modern capitalism as we know it. But with the price of the world’s largest cryptocurrency on a steady rise, it’s the perfect time to look again at where Bitcoin sits in the eyes of those trying to define it.
In today’s Market Watch, we’ll take you through the arguments for Bitcoin as either a currency, an asset or something else, and whether it’s time to look at Satoshi Nakamoto’s invention differently.
Bitcoin as a currency
Bitcoin can be used to buy a whole load of things. From holidays, artwork, food, cars, property and more.
One of Bitcoin’s earliest proofs-of-concept came when Laszlo Hanyecc agreed to pay 10,000 Bitcoin in exchange for two Papa John's pizzas. The day is now affectionately commemorated as “Bitcoin Pizza Day”.
Since then, more than 100,000 different websites now accept Bitcoin as a mode of payment.
But the trend appears to be that Bitcoin is moving away from it’s role as a currency. Bitcoin’s trading volume has been declining since 2018, replaced by Ethereum as the most moved asset.
On top of that, the number of Bitcoin addresses holding more than 0.1 coins, (currently about $1,188) is at an all-time high, and the number of addresses holding more than 100 coins (currently $1,188 million) has reached a six-month high, according to Glassnode.
This has been a trend that's been maturing over several years, according to Grayscale’s valuing Bitcoin report. In the paper, Grayscale noticed a marked increase in the number of holders--people holding Bitcoin for longer than three years--versus speculators, people who have moved Bitcoin in the last 90 days.
Lastly, but not leastly, for a currency to be viable, it needs to have low volatility. If a currency moves a lot then it makes it difficult to value goods and services appropriately. Especially when you have to factor in transaction times on Bitcoin. You might agree on a price for a good, but in the transaction time - which can be days if the network is busy - the value might rise or fall, making it extremely difficult to manage revenue flows.
Bitcoin as an investment?
What happens if we see Bitcoin has a HODLing tool? Something you buy and hold and hope the price goes up? Well, there appear to be two camps with this: the Bitcoin believers and Bitcoin doubters. On the Bitcoin believers side, you have companies like MicroStrategy and Square, who have been betting big on Bitcoin as an investment.
These two companies are regarded as Bitcoin’s flagship institutional investors, sinking nearly $600 million into the cryptocurrency between them.
Their thinking for Bitcoin’s potential as an asset is two-fold. The first is about its position as a money supply that’s beyond the quantitative easing currently employed by some of the world’s largest economies.
MicroStrategy CEO Michael Saylor argues that as central banks increase the money supply, so the value of everything bought with that currency, equities, and bonds, become worth less.
With Bitcoin on the other hand, no one or no thing can change that. Its monetary supply is fixed and is non-inflationary. As a result, BTC in the eyes of the believers is seen as an investment. And it’s not difficult to see why. MicroStrategy has seen it’s investment return $133 million in profit on it’s $550 million investment.
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