Did you see Bitcoin cryptocurrency trading at $ 57,000 last Friday, only to drop to $ 28,000 on at least one exchange at $ 28,000 over the weekend (December 4-5)?
The price had since recovered partially, though it only rose as much as about $ 50,000 on Wednesday evening (December 8th). This is just the latest example showing that cryptocurrencies are not money.
In order for something to serve as a medium of exchange and store of value, it must meet several requirements. These requirements include:
• Generally available
• There is little or no cost to adhere to it
• Recognizability
• Transportability
• Stability of value
• Divisibility
• Difficult to forge or forge
• Have a relatively high number of items in circulation
While bitcoin and other cryptocurrencies can meet many of these requirements, they all lack consistency in purchasing power. Last weekend’s 50 percent crash wasn’t the only case of tremendous volatility in Bitcoin this year. On May 19, the low for that day was less than 70 percent of the high. The closing price that day was 34 percent lower than a week earlier.
This volatility is due in part to the extreme leverage that can be used to buy cryptocurrencies. In a testimony before the House Financial Services Subcommittee on Supervision and Investigation on June 30, a witness stated that some traders could buy up to 100 times their own funds when purchasing a cryptocurrency. For example, if they bring in only $ 10,000 of their own funds, they could borrow an additional $ 990,000 to make a total purchase of $ 1,000,000.
The massive leverage that is possible with Bitcoin and other cryptocurrencies guarantees that they are not suitable as a stable medium of exchange and store of value.
In contrast, the purchasing power of physical gold and silver has remained relatively constant over several thousand years. One ounce of gold could buy a men’s toga of the highest quality in Rome 2,000 years ago. Today, a high-quality men’s suit can still be bought with the same ounce of gold.
This is just one reason why physical precious metals have served as a medium of exchange in the past without ever failing. In contrast, cryptocurrencies are merely risky, speculative, intangible assets.
Patrick A. Heller was honored as FUN Numismatic Ambassador 2019. He also received the Glenn Smedley Memorial Service Award 2018 from the American Numismatic Association, the Exemplary Service Award 2017, the Harry Forman National Dealer of the Year Award 2012, and the Presidential Award 2008. Over the years he has also been recognized by the Numismatic Literary Guild (including 2021 for the Best Investment Newsletter), the Professional Numismatists Guild, the Industry Council for Tangible Assets, and the Michigan State Numismatic Society. He is the communications officer for Liberty Coin Service in Lansing, Michigan, and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals. Past newsletter issues can be viewed at www.libertycoinservice.com. Some of his radio commentary, titled “Things You ‘Know’ That Just Are Not So And Important News You Need To Know,” can be heard on Wednesdays and Fridays at 8:45 am at 1:20 pm at WILS in Lansing (which are broadcast live). and becomes part of the audio archive on www.1320wils.com).
