As Bitcoin Shoots Past $40,000, It Unequivocally Reminds Us That It’s Not Money

Imagine selling a house, car, or your skills as a carpenter to someone offering Bitcoin as payment. The obvious question posed to the buyer would be “Which Bitcoin? The one that fetched $15,000 toward the end of 2017, the one that sold for a little above $3,000 one year later, or the one that exchanges for roughly $40,000 at present?�

Please think about the volatility of the speculation that is Bitcoin. Some naively describe the latter as “money.� They clearly misunderstand what money is.

Money is a low-entropy measure that facilitates the exchange of real things. That’s it. Money is an agreement about value, meaning an agreed upon measure of value that makes it possible for goods and services with actual market value to be exchanged. Per Adam Smith, the sole use of money is to circulate consumable goods.

Money that bounces around in a value sense is no longer money precisely because its value is changing all the time. Think about it.

No one actual exchanges money, pays in money, lends, or borrows money. In each instance actual market goods are being exchanged. You sell your labor for dollars precisely because the dollars can be exchanged for other market goods. You sell your car for dollars on the assumption that you can attain goods and services of equal value for the car sold. This hopefully explains why would-be currencies that have valuations defined by volatility very quickly cease to exist as “money.� They do because those who provide tangible market goods or services in return for money can’t trust that the volatile money will command equal value in the marketplace.

All of the above explains why Iran’s rial long ago ceased existing as a monetary medium. Having been devalued 3,500 times since 1971, producers no longer trusted it. How could they? Trade is products for products, but with the rial trade would have always been products exchanged for fewer products. To sell for rial was to accept a “haircut� as a buyer with rial. The toman has replaced the rial in Iran, but the relatively much more stable U.S. dollar is the currency of choice in the Middle Eastern country.

Money is a quiet consequence. People produce, they’ve long produced, and “money� was the logical consequence of production. Those with market goods needed a way to exchange their produce with other producers of market goods; hence money.

Real money is rarely discussed simply because there’s no reason to discuss it. Money that’s regularly talked about due to its lurches in value is the equivalent of basketball players routinely talking about the length of the inch, and football players the amount of time in a second. Neither would. An inch just is. A second just is. Each is a measure that if shrunk (inch) or expanded (second), wouldn’t make a player taller or faster. The inch and second are quiet. They’re low entropy. The noise, or the excitement is a consequence of tall basketball players and fast football players. What’s low entropy confirms the high-entropy reality.

Bitcoin isn’t quiet. It’s loud. It’s a distraction. People literally watch its movements in market value with bated breath. They talk endlessly about it. Will it go up? Will it come crashing down? What’s watched with great constancy from a value standpoint is no longer money. How could it be?

Think once again about the selling of a house, car or carpentry services for Bitcoin. As evidenced by the fact that the speculation has doubled in price in the past month alone, transactions refereed by Bitcoin would logically result in an incredibly unhappy buyer or seller. That’s the case because monetary transactions once again speak to goods and services transactions.

Imagine if on December 8th a homeowner entered a contract to sell his house for 50 Bitcoin on January 8^th. The buyer on January 8^th would be none too happy. The Bitcoin in the contract would command roughly double the market goods that they did at the time of contract.

Conversely, imagine the owner of a Porsche agreeing to sell it for 2 bitcoin on February 8^th, and a carpenter offering to construct an armoir for one Bitcoin on January 8^th, and a second one on April 8^th after job’s completion. Based on the speculation’s volatility, the car seller could be devastated in February. Indeed, a speculation that doubles in value in a month could just as easily halve in value by February. Lest we forget, Bitcoin exchanged for many more dollars in 2017 than it did in 2018. Will a carpenter entering into a longer-term contract measured in Bitcoin be happy or sad in three months? No one knows.

To be clear, interest in Bitcoin is an understandable response to government money (including the dollar) that has been particularly unreliable in the 2000s. The problem is that Bitcoin offers no refuge from currency unreliability. The latter is a statement of the obvious as evidenced by the fact that Bitcoin devotees so closely track its value in dollars. Implicit there is that the faux money is a moving target as a measure of value, which means it’s not money.

Furthermore, Bitcoin itself is measured in dollars. Get it? The aspiring monetary form is measuring itself in dollars, which means it’s a non-dollar dollar that magnifies the greenback’s worst qualities. Translated, holders of dollars have been whiplashed since far less than Bitcoin owners have over the years.

None of this is to say Bitcoin owners won’t make money for owning them, but real money isn’t speculated on. What’s a measure is constant. Bitcoin is a speculation, which means it’s not money. Period.