Yale Insights interviewed Professor William N. Goetzmann, a teacher of Finance and Management Studies, about the advent of cryptocurrency. The discussion centered around the purpose and value of money. The article says, in part:
Bitcoin’s volatility underscores the challenge of establishing the trust needed for a widely useful currency, but the proliferation of cryptocurrencies also shows that traditional, government-backed currencies don’t address everyone’s needs.
Goetzmann says as part of a Q&A that Bitcoin isn’t the best store of value because its value is ever-changing. Depending on who you ask, Bitcoin’s volatility is its greatest asset or its worst enemy. Still, the argument that Bitcoin is an inferior store of value is likely to rankle certain parts of the community, who insist that as “digital gold,” store of value is Bitcoin’s primary proposition.
Such people argue that the currency aspects, usability, and virtually every other factor are secondary to its function as a means for hodling wealth.
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There are a few basic things any currency has to fulfill. It has to be a store value.[…] It has to be a method of transferring value. With Bitcoin, because it fluctuates so much, it’s not a particularly good store of value. You could put in $100 worth today, and it could be worth $25 dollars two weeks from now. Until it overcomes that particular feature, it’s not a great currency.
Of course, he’s really only referring to negative fluctuation. When the market is going upwards, you don’t hear a lot of complaints about the volatility. You send money, someone receives it, you both have more money the next day because the bull market is raging.
And, there are legitimate arguments which state the Bitcoin market will always be volatile. Whether that’s a bug or a feature depends on your disposition. Volatility is great for traders. Volatility that errs upwards is great for everyone involved.
Another interesting aspect of Goetzmann’s theories on Bitcoin is that Bitcoin is a return to the original way of doing business. Before the invention of paper money and coins, people traded on ledgers, assigning values to their goods and services – rather than exchanging actual money. He says this is similar to the blockchain.
In a sense, we’re going back to the time before we had anonymous money, transferrable by physical processes. That is exciting because each method of storing and transferring value solves different kinds of problems.
Of course, this statement leaves no room for coins that are, in fact, obfuscated to the point of anonymity, like Monero. The fungibility of Monero and other privacy coins is much higher than Bitcoin due to the difficulty of attaching an identity to a set of coins.
Criminal activity combined with identified account owners reduces fungibility. While the dollar is not subject to such a risk – you can spend all the cocaine-tinged Benjamin Franklins you want – cryptocurrencies are treated differently.
For example, don’t get caught trading with certain Bitcoin addresses in Iran.
Goetzmann also speaks to the counterfeit-resistance of Bitcoin as compared to fiat currencies. In total, his views on Bitcoin appear somewhat neutral, although he believes, as many do, that it’s currently a speculative asset investment at best.
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