Bitcoin II

Bitcoin can work as a medium of exchange when buyers and sellers agree to use it.

But what about the other two functions of money? As a store of value, money allows the transfer of purchasing power from the present to the future. As a unit of account, it provides a standard way of quoting prices.

Bitcoin struggles to play these roles due to its high volatility. This means its dollar price can rise significantly or fall sharply in a short time.

Consider Mark. He plans to buy consumer durables after a few months. He saves in Bitcoin for these purchases.

When he makes this decision, one Bitcoin is worth seventy thousand dollars. But a few months later, it fell to fifty thousand dollars.

So now, the same goods require more Bitcoin than he had expected, reducing his purchasing power. This makes Bitcoin less reliable as a store of value.

Now let’s look at Bitcoin as a unit of account. Imagine a café adjusting its menu prices often because the value of Bitcoin keeps changing. This makes pricing in Bitcoin difficult.

High volatility makes Bitcoin less effective as a store of value and a unit of account across the economy.