Economics: Don`t Call Bitcoin A Currency

(Drivebycuriosity) - Bitcoin gets a lot of attention these day. Its price shot up more than 700% since last October. The price explosion is the proof that bitcoin is not a currency and cannot be used as money as long it behaves so erratic. The extreme fluctuations would make accounting and business plans senseless.

Currencies are used as a means of payment. But paying with bitcoin is a game of chance because of the wild price fluctuations. Tomorrow`s value of any payment could be much higher or lower than expected. Neither seller or buyer can calculate the transaction.

Currencies are also used as a calculation basis. Prices, interest rates & debts are denominated in dollar, euro or an other currencies. If a company would mark their prices in bitcoin they would lose  customers when a sharp bitcoin rally makes their goods & services too expensive or they would suffer high losses when a bitcoin crash makes them too cheap.

If someone borrowed bitcoin last November - or made a debt calculated in bitcoin - his debt multiplied with the factor 8. Bitcoin borrowers could get bust because of sudden bitcoin price rise, lenders could get bankrupt, when the price of bitcoin crashes.

The sharp rise of the bitcoin price reduced prices of other assets & goods calculated in bitcoin about 80% since last November. A sharp general price drop is called deflation and could do a lot harm to the economy and could even create a depression

The amount of bitcoin is limited by its constructors (wikipedia). A growing economy needs a growing money supply to finance a rising amount of goods & services. Otherwise prices would have to fall constantly. If bitcoin would replace the dollar the US would experience constantly falling prices. Therefore a bitcoin economy would be a deflationary economy.

Bitcoin is a highly speculative asset & a toy for speculators, nothing else.