After the most global hype a digital currency (and possibly anything, ever) has seen, and 12 years since its inception, the benefit Bitcoin is providing to the world is becoming harder and harder to define.
Environmental concerns aside, questions are being raised about Bitcoin’s credibility as a currency.
To function as money, a currency must meet the following criteria:
- It must serve as a medium of exchange, meaning a barter system or ‘double coincidence of wants’ is not required
- It must provide a common measure of the value of goods and services being exchanged - i.e. function as a unit of account
- It must act as a viable store of value - in other words, be able to hold its value over time.
As with physical dollars, works of art, cars, and property, cryptocurrency must be able to hold its value over time.
But it’s being saliently noted that Bitcoin may not be ticking all the boxes.
Let’s go back to the original promise made by digital currency.
Bitcoin’s grand intentions
Although the origins of Bitcoin are shady and the identity of the founder unclear, the principle underlying early digital currency was decentralisation.
This sentiment was fuelled in part by the GFC of 2008, where trust in banks and government institutions was decimated. Ethereum, which was minted just a few years later, was created with the intention to galvanise the developer community, supporting the potential of smart contracts and SaaS.
In all senses, cryptocurrency has always intended to be forward thinking and future-proof. But the sentiment (read: panic) surrounding the intrinsic value of a Bitcoin is throttling its use.
Bitcoin as a currency
Holders of BTC tend to view their digital assets more as investments than as money in their pockets. The fear of spending it ahead of a huge value jump has hugely restricted movement of Bitcoin as a payment method.
And they’re not being irrational. $40,000 in BTC could be spent on a car. It could also double in a matter of months. The same can’t be said for any other monetary token. It’s making less and less sense to use cryptocurrency for basic buying and selling. The slow adoption of it by companies like Tesla can be viewed cynically as a publicity stunt (or worse, a gimmick).
Its extreme volatility means it’s just not always worth using in place of fiat money. Unless BTC can unstick itself from being pigeonholed as an investment asset, it may never achieve mainstream use.
But as with all things Bitcoin, there are no definitive rules. Sentiment changes daily, and real-world options for spending your Bitcoins are still slowly growing.
Stablecoin as an alternative
Stablecoins like USDC or Tether may be worthy exceptions. Backed with tangible assets (in many cases fiat currencies), stablecoins provide the functionality as a currency alternative that Bitcoin can’t. Stablecoins are liquid, they’re relatively low in price volatility, and they’re integrated with established financial institutions.
However: stablecoins kind of undermine the whole point of cryptocurrency. Because they’re tied to the very monetary systems crypto was made to break away from, they don’t support the original principle of decentralisation.
Essentially, they’re a middle ground between fiat and crypto currencies, and a good one at that.
Bitcoin as a store of value
As a store of value, on the other hand, Bitcoin may yet find its niche.
Value comes not just from a currency’s ability to be stored, but from its scarcity.
There is no perfect store of value on the planet. Perishable food has value, but it doesn’t store it well. Dry foods may hold value physically, but lose it quickly due to lack of scarcity. Oil and gas depend wholly on the environment. Fiat currency is subject to inflation. Gold, silver, and bronze are maybe the most durable stores of value we’ve established as humans, compounded by the fact they are also scarce.
Bitcoin is also scarce. There is a finite amount of it in existence, and mining it involves skilled and complex digital labour. This is why it’s often referred to as ‘digital gold’.
It can also be easily stored, digitally or offline using cold storage.
But the lack of spending remains a problem. However functional an asset is as a store of value, if it’s being hoarded rather than circulated, it’s not much good to anyone.
STAX and the future of crypto investments
At STAX, we want to present the advantages and choice of crypto-led investments. But we don’t necessarily expect our clients to invest BTC in companies on our platform.
We view stablecoin (USDC/USDT) as a viable and attractive alternative. It’s a stable store of value with near-instant transaction times, and very few associated fees.
Through this medium, we’re opening the doors to international investors wanting to invest in Australian companies.
Interested? See our latest investment opportunities here.