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Payment method or investment?

October 26, 2020

Money is often presented as an instrument that has to be a unit of account, a medium of exchange and a store of value at the same time. It should be noted, however, that two additional properties are equally relevant: acceptance and stability. The importance of acceptance is obvious. If no one accepts a particular coin, it wouldn’t make sense to use it. On the other hand, there is stability. Because an unstable currency is an inefficient currency for trade and credit. What is bitcoin Currency or investment?

Actually, anything can be used as a means of payment. We can list a car as a method of payment for the purchase of a newer car. We can give a piece of land or a house as payment to buy a business. Or we can even present jewelry as collateral for a loan. We can buy a coffee for some kind of collector’s item of little value. In other words, barter is a very old practice and it is still with us. C.We can use practically anything as a means of payment. Of course, that doesn’t mean that anything is a form of payment in and of itself.

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Payment method or investment?
Payment method or investment?

We know that cigarettes were used as money in prisons. That would be a form of “commodity money” that arises out of necessity because there is a lack of alternatives. To say now that cigarettes are money would be confusing. Should the cigarette maker go through additional regulations? How should cigarettes be treated for tax purposes? Well, everyone would tell you that the use of cigarettes as a means of payment is something out of the ordinary, secondary and localized. Obviously, the main function of cigarettes is not to be a medium of exchange.

We could also analyze the case of gold. While it is possible to pay for something with gold coins, this could now fall into the barter category. Suppose we went into a car dealership with a bag of gold coins. Most likely, a different payment method will be requested from the customer. However, it is also possible that the seller, in order not to miss this opportunity, examines the gold price and then turns to a gold buyer who acts as an intermediary. This enabled the dealer to sell the vehicle in gold, but within a few hours had the money in the bank in local currency.

In this fictitious transaction, the local currency was used as the unit of account. Let’s say the dollar. Then the equivalent of gold coins was calculated and the exchange was carried out, but with the assistance of a third party. In fact, two transactions took place at the same time. It was basically a triangulated barter.

For example, suppose you are not dealing with a dealer, but the business consists of a jeweler selling a car to another jeweler. The selling jeweler accepts the gold coins as a means of payment. That said, it is not a triangulated barter as there are only two parties and the dollar has not been used for anything. However, this was also a barter. Because the price was set in dollars. In automotive accounting and documentation, it is represented as a dollar transaction. This happens because the price of gold fluctuates. Gold? Is it money Or is it a commodity that was used as a means of payment in a barter?

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Of course, I could present any other example. We can talk about head of cattle, corn deliveries, artwork, antiques, or supplies. For example, there are brokers and gold administrators who offer their customers debit cards. All kinds of purchases can be made with this card. And the account is settled with the sale of the stocks or gold.

For example, PayPal is a payment method. In this case, the most important thing is commercial acceptance and the number of users. The company’s income comes from commissions and services derived from transactions by its users. Nobody cares if Warren Buffett or Bill Gates use PayPal to shop online. No large fund pays millions of dollars into a PayPal account. And when that happens, our balance is not affected. As the PayPal network grows, it just means more places are accepting this form of payment. This is more convenient for people who use PayPal as a payment method. But that’s it.

Now let’s talk about Bitcoin. If Warren Buffett or Bill Gates announced an investment in Bitcoin, the news would surely affect the price. Because the world of Bitcoin is very different from the world of PayPal. Bitcoin is more like Wall Street. They talk about the price of Bitcoin in the specialist media. Cryptocurrency exchanges are more like places like eTrade or Robinhood than websites like PayPal or Square. In this area we talk about charts, indicators, fundamentals and institutional capital. The average user puts money in Bitcoin and expects a return in the future.

I dont know. However, it seems clear to me that Bitcoin is more than a payment method that is speculative. In other words, it’s more an investment than money. It is what the eyes see. It’s that simple. Why is it now being presented to us as a means of payment par excellence? Characters like Roger Ver and Andreas Antonopoulos speak of Bitcoin as the money of the future in a hypothetical scenario of the separation of state and economy, the abolition of fiat money and libertarian utopia. Is that bitcoin?

The case of Andreas Antonopoulos is particularly interesting. He was introduced to Bitcoin in the early years but did not invest. Because, in his opinion, he fell in love with Satoshi’s technology and vision. That said, he didn’t see Bitcoin as an investment. He wrote a book explaining bitcoin to programmers. And he goes around the world talking about Bitcoin as a missionary evangelizing humanity. Andreas account always trying to install bitcoin wallets on people’s phones (taxi drivers, waiters, guards, public, etc) to get the word out. Since Andreas is one of these Bitcoiners, they see Bitcoin as the money (payment method) of the future.

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There are two main streams in the crypto community. Bitcoin is presented as the money of the future in libertarian utopia. And another that views Bitcoin as an investment that promises high returns in the near future. In the latter case, Bitcoin is more of a “collector’s item”. And this “collector’s item” is great for bartering (especially for currencies) but is better suited as an investment. Because of its volatility, it is not that good for trading or for credit. And as a unit of account it is fatal. It is best to use the dollar. But as an investment, it’s great.

The definition of Bitcoin is confusing as the loudest voices in the community are saying that it is a decentralized payment method intended to replace Fiat, but reality tells us that it is an investment. So this gap between what is said and what is done is confusing. There is an aspirational bitcoin. This is the bitcoin of the libertarians. And there is an actual bitcoin, which is the bitcoin of investments. This is today’s Bitcoin. The one who can be seen. Institutional capital is interested in the latter. Big companies, big investors, big banks and big funds are interested in the Bitcoin of Investment.