Will Bitcoin Take Over as a Medium of Exchange from the Dollar? | Barron's
Elon Musk, no stranger to controversy, raised eyebrows when he said that his company bought $1.5 billion of Bitcoin. Shortly afterward, he confirmed that people can buy Tesla cars with Bitcoin. A payment system to make exchanges like this possible is springing up. Between credit card companies, banks, and hybrids like PayPal, room is being made for a new currency. Will these efforts displace traditional money? You can lead a horse to water, they say, but you can’t make it drink. There is good economic reason to believe that Bitcoin will not be used for transactions outside of the odd case.
Assume the best: Bitcoin is the real deal. Its limited supply and blockchain authentication make it better than fiat money like the dollar, which is constantly being diluted by a politically driven printing press. Gresham’s law states that bad money drives out good. That means the depreciating dollar will be used for transactions, and Bitcoin will be hoarded.
While cryptocurrencies are traded, they are not being truly used as a means of exchange. The daily volume is minor compared with their market cap. Studies have found that a high percentage of Bitcoins have not changed IP addresses for a couple of years. The more they are hoarded, the less they can achieve the networking effect that bestows money-ness, making it more of an asset than a currency, which is how the Internal Revenue Service regards crypto.
