I’m Hoarding Bitcoins, and No You Can’t Have Any
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Those nasty hoarders! You know the ones. They won’t use bitcoins because they think they’ll be worth so much more later. But how can we convince businesses to accept bitcoins if no one will spend them? We need to guilt those hoarders into spending their bitcoins to support the merchants! This article is about why this line of reasoning is exactly wrong.
If You Sell Bitcoins, You Aren’t “Selling” Bitcoins
I’m sure you’ve heard a story like this. “I’ve been going to all the local stores and telling them how awesome Bitcoin is! But none of them wants to take payments in Bitcoin! Why don’t they like it?”
Let’s think about that for a minute. You are essentially telling the merchant, “Hey look at this totally awesome thing that I want to get rid of! You should trade me some stuff for it!” Not actually much of a sales pitch, is it? Why would the merchant want something that you, apparently, don’t want? If you really want him to start accepting bitcoins himself, ask him, “Do you take worthless paper money at this store? Good, because you’re not getting a satoshi from me!” That will convince him that you think they’re valuable.
How about this instead? Tell your local merchants that you want to be able to spend cash in their stores and get the change in bitcoins. That’s the kind of store I’d like to shop at. And then when the merchant later says “I’m not going to do that anymore. I want you to pay me in bitcoins!” you know he’s become a true hoarder.
Hoarders Give Bitcoin Value
The initial price of bitcoin was caused by people who wanted to hold it, not people who wanted to spend it. Furthermore, each subsequent step in Bitcoin’s advance must begin with more holders, not more spenders. The business that bitcoins can absorb is limited by its market cap. At a market cap of two or three billion dollars, Bitcoin can absorb many small businesses but it cannot be used for international oil trade. It would have to be dozens of times more expensive for that, and it can only achieve that if the peoples’ desire to hold bitcoins continues to increase faster than their desire to spend them. Thus, one who wants Bitcoin to become mainstream should never want its price to be lower. He should want an ever-increasing supply of hoarders.
It is true that Bitcoin’s price can occasionally and temporarily outpace the growth in its real prospects, but this is merely a byproduct of Bitcoin’s phenomenal success. A commodity which increases in price as quickly as bitcoins can be expected to experience shocks and manias on its way up because it would be difficult to tell the difference between a sustainable price increase and short-term speculation. However, does it make really sense to prefer an alternative history for Bitcoin in which its price has increased slowly enough that it never developed any manias? I do not see how that could possibly be preferable. The faster Bitcoin grows, the more complete and decisive will be its victories, and the more difficult it will be for its natural enemies to react to it.
Who Needs Merchants Anyway?
One of the most annoying things about Bitcoin is that it’s so convenient to make payments with it that sometimes it is extremely tempting to spend it and avoid the hassle of using dollars. One of the ways to help deal with the temptation to spend is to demand a Bitcoin discount at any store that accepts Bitcoin. This is perfectly reasonable because not only is the store lowering its own costs by using Bitcoin, but it is asking me to give up an inherently superior commodity.
Hoarders are more important than merchants. If a restaurant downtown starts accepting bitcoins, this does not necessarily create an incentive for anybody to buy more bitcoins. Why would anyone bother if they can still just use a credit card? If you can convince a merchant to accept bitcoins and stop accepting dollars, then I’ll be impressed.
Unless a merchant is offering something that cannot be bought for dollars, or at least offering a discount, he is only benefiting Bitcoin to the extent that he encourages more hoarding. If he immediately converts the bitcoins he receives as payment into dollars, and if his customers only buy bitcoins so as to spend them at his shop shortly thereafter, then neither has much direct effect on Bitcoin’s demand. The real hero is the hoarder behind the scenes who buys from the merchant and enables him to convert his payments into dollars.
Greed is Your Friend
There can be no spending of bitcoins without the buying of them, and thus all use of bitcoins as a medium of exchange depend on someone who wants to increase his holdings, i.e., a hoarder. Without them there could literally be no Bitcoin trade. Furthermore, it is counterproductive to try to turn hoarders into spenders. There really is no compelling reason that anybody should spend bitcoins any time soon–—if everybody is hoarding, that will just make the price go up until finally someone can’t help spending some.
Currencies are unusual in that the greater is its market cap, the more useful they are. This is in contrast to a more ordinary security, such as a stock, because a stock has a better value the cheaper it is in relation to the underlying assets of the company. A more expensive currency is ipso facto more marketable (more liquid), thus making it a superior medium of exchange. The more bitcoin hoarding there is, the better it is as a medium of exchange.
Thus, the success of Bitcoin is, to some extent, a self-fulfilling prophesy. Belief in Bitcoin improves the Bitcoin network, as long as people back-up that belief by the the action of acquiring and holding more. The more greedy people are for Bitcoin, the better are its chances. You should never want people to spend more—you should want everyone to be as greedy as possible.
All Hail the Hoarders
Let out your inner hoarder. Don’t deny your urges. Let him out and come to terms with him. Imagine how he would look if he could sit on your hoard of bitcoins. Doesn’t he look terribly happy? Let him roll in your bitcoins. Doesn’t he look so cute poring over his copy of Atlas Shrugged? Look at how gleeful he is as he buries it in his basement. Now let his avariciousness flow over you. Let it seep under your skin. Let your hands clutch! Let you teeth clench and your mouth contort into a covetous grimace. I want to hear cackles!
Now didn’t that feel good? The Bitcoin economy will thank you in the end!
I conclude with one proviso: it can be very effective to give out small amounts of bitcoins just to help accustom people to having them. However, the reason this is effective is that it helps spread avarice around.
If you enjoyed this article, please help by contributing to Daniel’s hoard!
Italian translation by Portico Dipinto!
Just wondering…how many bitcoins do you have?
I’m sure he’ll tell you once you give a full accounting record of your assets.
You were doing alright until the racist picture at the end, Daniel. Wasn’t Ludwig von Mises Jewish himself?
Read the caption.
The caption doesn’t really seem to justify it, honestly.
On behalf of The Mises Circle, I would like to sincerely apologize to the readers of DogeDogeDoge’s offensive comment. The belief that Jews are a “race” is repugnant and very 20th century. We here at TMC celebrate all things Jewish and would never endorse a comment like DogeDogeDoge’s.
To answer your question, yes Ludwig von Mises was Jewish.
But that’s a non-sequitur, since the cartoon was not referring to Ludwig von Mises, Woody Allen, Larry David, or even Ben Stiller. It was specifically referring to Michael Goldstein, the scholar & gentleman who edited and published this fine article, who also happens to be one of the chosen people.
3edgy5me. I’m not the one who posted the anti-Semitic propaganda image.
I found it awesome, the caption and the picture. OY VEY DOGEDOGEDOGE goyim
Lots of my favorite people are Jewish, not just Mises. I don’t understand the problem. The whole point is that you’re supposed to identify with person in the image and that he’s really the good guy! He’s your role model!
I would like to link to this article, but I don’t want to link to the image at the bottom. I don’t think it was Daniel’s intent, but I am concerned about riling up anti-semites.
A great article. I was hoping someone would touch the subject from this angle. It is evident there will be more interest in bitcoin at $4000 than at $400. In the former case, there’s the sweet smell of success. In the latter one, a pungent stink of failure. More hoarding is needed.
“Pungent stink of failure?” Come on.
If the price were to skyrocket to $4000 tomorrow, many would not buy in because they would feel that they “missed the boat.” The divisibility of the bitcoin is something that I have to explain to just about every person I come in contact with.
I see merchants accepting Bitcoins as advertising for us.. eventually if at every store you shop at you see Bitcoins, you are going to wonder, what’s a Bitcoin anyway.. look around and then realize.. whoa! These are awesome, I want some! And not only are they a better government proof form of currency but
Also, you need to buy stuff some times.. if you buy it using digital currency, you don’t need to cash out to buy it!
This is a good point. Spending Bitcoins and hoarding are not incompatible. Look at it as advertising, giving away small amounts, etc… If you are going to spend fiat, use that fiat to buy Bitcoins and spend your Bitcoins on merchants. The small amount you pay in tx fees is similar to giving away to friends. Especially if you replenish your supply of Bitcoins in bulk. Merchant acceptance does not add value, but it does add credibility and general acceptance and marketing efforts. Just be sure to get more coins to add to your stash!
Actually, I like spending bitcoins and I do try to get stores around to accept them as payment and I understand the point about advertisement. I only spend small amounts though! 🙂
“We need to guilt those hoarders…” How about using the perfectly good verb ‘shame’ instead of ‘guilt’ here?
I’ve owned bitcoins on and off for over year now and I am waiting for the price recover a bit more so that I can again sell my handful of bitcoins and wait for its price to nosedive. I find it curious that someone as bright as the author is a bitcoin hoarder. Stil, I need a buyer otherwise how I’m going to exit this thing.
I guess only folks who are under water now are arguing that hoarding is good (TM). Those who have a lower average cost than the average exchange rate are going to sell into strength (or into panic, in case the price doesn’t go back to $700).
>I need a buyer otherwise how I’m going to exit this thing.
Spending BTC is a way of “exiting this thing.” Unless you consider your paper fiat money superior to “stuff.”
What’s going to make people start spending BTC are the rewards programs that vendors can offer because of the discounts they get vs. credit cards. For instance, by buying gift cards with Gyft, you can earn an effective 3% cash back through their rewards points system. This compares to 1-2% that you’d get from most credit card rewards programs. So anyone who does regular shopping at places like Target or Whole Foods might be wise to switch their spending from credit cards to BTC/Gyft, especially if these are purchases that have to be made either way.
This is exactly the sort of thing that breaks most of the “deflationary spiral” arguments, whether applied to bitcoin or more generally… Everyone has a hierarchy of needs and a time preference to fulfill those needs. Some needs, like food and housing need to be supplied *now*. Other things, like luxury goods can be postponed… But you’d still rather have them now than later.
The “deflationary spiral” presumes that if consumers are faced with a game-show like choice between increasingly nicer luxury goods or “what’s in the box,” they would choose “what’s in the box” every time based on the notion that it will be better. But it seems bonkers to me to assume that *everyone* would make this choice. In a deflationary environment, some people would always postpone spending no matter what (we’d call them “hoarders” or “misers”), while others would take advantage now. It seems to me that both are essential for a healthy economy.
Plus that deflation just gets built right into the new price and life continues on, deflation being bad is mostly the government telling people that because they benefit when they are allowed to inflate the supply.
Very interesting article on the subject:
Can you send me some coins? 1AQgsUM3wazuF3WNNhABxtbuvYFeXk4g3R That would be… excelsior!!!!
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This is bad economics. Yes, hoarding increases bitcoins value, but in the long run that is a bad idea. http://en.wikipedia.org/wiki/Economic_bubble Bitcoins = tulips. The other problem is that bitcoins having value is not the argument, it’s that spending is the basis of any economy, not hoarding. If no spends anything, there is no economic growth because no one is making any deals.
If it reaches a point where all Bitcoins are hoarded (effectively out of the system) it won’t be good for any economy. A currency has no value of its own (as a general rule.) It is useful because it facilitates trade. If, instead, it collects in the hands of a few who do not spend it. it ruins economies. Money becomes unavailable in exchange for labor. People can’t earn money, can’t buy food, and so on.
An economy can function just fine with people that want to acquire money so that they can spend it on various things. When there are hoarders, people who just want to collect all the money so that there is none left for general circulation, economies crumble.
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