Ok, so who recalls what UBS said back in September about why Bitcoin is not a currency? If your hand isn’t raised, that’s fine because I’ll be happy to remind you. To wit, from a lengthy piece the bank put together on cryptocurrencies:
The second role of a currency is to act as a store of value. People need to believe that what their cash can buy today, their cash will buy tomorrow. In order to maintain the store of value, central banks take a lot of trouble to keep a currency’s value roughly stable (i.e. control inflation). This is done by making sure that the supply of currency generally matches the demand for a currency. If the balance is maintained the currency will broadly keep its store of value. An individual crypto-currency cannot achieve this balance, which explains their volatility. Crypto-currency supply cannot go down. A fall in demand for a specific crypto-currency will therefore cause that crypto-currency’s value to collapse as supply outstrips demand. For context, Bitcoin’s collapse in value in early September was worse than the collapse in the value of the German mark at the start of the Weimar hyperinflation.
That dovetails with something we said in an article for DealBreaker on Friday. The following excerpt is from a discussion about the possibility that Bitcoin will accidentally end up factoring into lenders’ decision making processes, but you can hopefully see how it fits with the excerpt from UBS above:
I mean obviously you’re not going to put an asterisk by your net worth that draws people’s attention to a handwritten footnote that says “this is subject to change depending on the price of make-believe space tokens that are so volatile I can’t even give you a rough estimate of where they might be trading without checking my phone”, so how are lenders going to know if this starts becoming an input in their models?
The overarching point is that something which fluctuates so wildly that no one can reliably say what it’s worth at any given time without checking where it’s currently trading cannot possibly be a “currency.”
This is complicated further by the discrepancies in price across exchanges – discrepancies which were on full display during Thursday’s furious rally and concurrent chaos.
Well, consider all of that and then read the following hilarious modified Monty Python reference from a new piece in The Economist:
SCENE: A pet shop with a bored looking proprietor. A customer approaches
CUSTOMER: I’d like to buy a parrot.
OWNER: Certainly, sir. How about this one? It’s a Norwegian Blue. Beautiful plumage.
CUSTOMER: It’s not moving much
OWNER: It is tired and shagged out after a long squawk
CUSTOMER: Fair enough. How much is it?
CUSTOMER: I’ll pay with this Bitcoin
OWNER: Sorry, sir. On WavesDEX, the Bitcoin is only worth $13,500
CUSTOMER: But on LocalBitcoins, it is over $21,500! Look at the news headlines.
OWNER: Sorry, sir, but I can’t afford the risk. My rent, heat and light are all payable in dollars.
CUSTOMER: But the dollar has ceased to be, it has shuffled off this mortal coil, it is an ex-currency
OWNER: So you say, sir. But at least it’s a reliable means of exchange. It doesn’t move much from minute to minute
CUSTOMER: Like this parrot