If it were to reach a steady state adoption and usage level, I imagine Bitcoin’s price would stabilize around some constant fraction of (the present value of) the market’s expectation of future world GDP.
According to Wikipedia, “velocity of money” is not a constant but tends to fluctuate. The article lacks citations, but I think this is the current mainstream view among monetary theorists. My understanding of the implication of this is that if you have a fixed supply of money then either prices or GDP would have to be unstable. In other words either you end up with an economy with very flexible prices that change constantly, or you end up with an economy that goes through constant boom and bust cycles (or some combination of each), and both of these outcomes are costly.
I feel like this isn’t nearly the issue it is made out to be when you separate real growth from nominal growth. Say you have real growth but prices fluctuate a lot, why should you care? Frictional costs should decrease over time as people figure out how to hedge properly in this environment.
So is the solution just to use Bitcoin as a medium of exchange and a store of value, but not as a unit of account? Then prices are free to fluctuate in BTC terms, while they can remain relatively stable in fiat terms, and GDP will be unaffected.
That would make it a terrible at being a medium of exchange or a store of value, though, wouldn’t it? No one knows how much it’s worth, and you have to acquire some, pass it off, and then (on their side) turn it into currency every time you use it.
That depends on how volatile it is. On the timescale of a single transaction, a certain level of volatility might not matter very much even if the same level of volatility would prevent you from wanting to set prices in BTC.
According to Wikipedia, “velocity of money” is not a constant but tends to fluctuate. The article lacks citations, but I think this is the current mainstream view among monetary theorists. My understanding of the implication of this is that if you have a fixed supply of money then either prices or GDP would have to be unstable. In other words either you end up with an economy with very flexible prices that change constantly, or you end up with an economy that goes through constant boom and bust cycles (or some combination of each), and both of these outcomes are costly.
I feel like this isn’t nearly the issue it is made out to be when you separate real growth from nominal growth. Say you have real growth but prices fluctuate a lot, why should you care? Frictional costs should decrease over time as people figure out how to hedge properly in this environment.
So is the solution just to use Bitcoin as a medium of exchange and a store of value, but not as a unit of account? Then prices are free to fluctuate in BTC terms, while they can remain relatively stable in fiat terms, and GDP will be unaffected.
That would make it a terrible at being a medium of exchange or a store of value, though, wouldn’t it? No one knows how much it’s worth, and you have to acquire some, pass it off, and then (on their side) turn it into currency every time you use it.
That depends on how volatile it is. On the timescale of a single transaction, a certain level of volatility might not matter very much even if the same level of volatility would prevent you from wanting to set prices in BTC.