IF you were a chicken farmer in a rural agrarian community many centuries ago, every Saturday you would probably load up your cart with chickens and do your shopping.
Your first stop might have been at the piggery, where you traded your chickens for meat. Then it was off to the mill for flour or the baker for bread. Finally, on the way home, a stop at the carpenter or blacksmith for supplies or tools to make repairs at your farm would complete your marketing. The owner of the piggery might have taken the chickens you traded him also to the mill for grain. Since the blacksmith did not produce any food, he might keep the chickens he traded for as a continuing food source of chicken eggs. The blacksmith’s excess eggs might have been traded for bread.
This would be called a “barter economy”, but live chickens would have been a good medium of exchange for everyone. The commonly defined characteristics of money are durability, portability, divisibility, uniformity, stability of value, relative limited supply and acceptability. Live chickens meet that criteria fairly well, except perhaps for divisibility, but then again, you can always kill the bird and rip off a leg or two as necessary.
Live chickens also could be used as a “storage of wealth”, since they produce eggs until needed for meat, giving a “return on investment”.
The most important quality of something that is used as money is acceptability, and that comes from all the other characteristics being there. Seashells did not meet the durability test. Elephant tusks were not easily divisible. Bat guano probably never caught on globally for other reasons.
“Gold bugs” are always complaining that paper money is not backed by anything useful. But what the gold bugs fail to realize is that gold is mostly useless if you are looking for something to eat, wear or keep the rain off your head. What made gold great as money was its durability. While we are told that cryptocurrencies are going to save the world economic system, Bitcoin and the others fail on two of the most important money qualities. Until these two are applicable, cryptos are a nice speculative investment and nothing more.
Acceptability is a great problem but maybe—a big maybe—that will change. However, it will not change until value stability is constant.
If nobody knew from day to day how many chickens were necessary to buy a kilo of pork, chickens would never be a practical and acceptable medium of exchange. That is the problem with Bitcoin. On a daily basis since September 30, the daily closing price in US dollars of BTC has been: +4.73 percent, +0.85 percent, -0.10 percent ,-2.02 percent, -2.23 percent, +2.38 percent, +1.29 percent +1.49 percent and +3.99 percent. The average daily price change going back to the beginning of March has been +0.73 percent.
Imagine the Philippine peso moving an average of 37 centavos a day and as much as 13 pesos from the previous day. Bitcoin gained 26.77 percent on July 20th and lost 15.89 percent on September 14. That is not money. That is a lotto ticket.
Should you buy Bitcoin? Certainly, as a speculative short-term investment after taking into consideration potential loss from hacking, theft and government closing the exchanges and confiscation.
For the longer term, you can buy also if you believe that money will continue to flow into Bitcoin. However, for now and the foreseeable future, do not consider that Bitcoin is money. That will only happen when you are able to buy your one-piece Chicken Joy meal with Bitcoin.
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E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.
2 comments
Interesting. In December 2016 I bought a new motorcycle from a dealer in Manila with my “non-money” bitcoin. The dealer held onto his bitcoin and cashed it in about 6 months later, after it more than doubled in value.
For the past 2 years I have bought all my cell loads with my “non-money” bitcoin, getting a 10% discount.
Yes, bitcoin is volitile but that volitility works both ways, up and down.
I like the point of view of this Article specially about buying a ChickenJoy with Bitcoin. For me I don’t Trade bitcoin yet although it is tempting. It really takes time to make this form of exchange be acceptable world wide since not everyone are optimistic about its virtual concept. However, sometime in the Future if governments allow the exchange of bitcoin in a certain manner as real currency then perhaps people will have confidence and maybe, just maybe price may be stable. I don’t believe bitcoin price will be stable without monetary policy that governs it. For now, it is just a virtual commodity to those who understand it.