Bitcoin’s True Power Lies in Its Function as a Medium of Exchange
Michael Saylor, a prominent figure in the cryptocurrency world, recently made headlines for his views on the store of value (SoV) properties of assets, particularly Bitcoin. While he emphasized the importance of preserving wealth through assets like Bitcoin, he may have overlooked the critical role of the medium of exchange. In this article, we will explore why the medium of exchange function is essential and how it relates to the housing market and other traditional assets.
Saylor’s focus on Bitcoin as a store of value asset is certainly valid, given its limited supply and potential to preserve purchasing power. However, the true power of Bitcoin lies in its function as a medium of exchange. Without the ability to transact with Bitcoin, its value as a store of wealth diminishes significantly. This was evident in Saylor’s own experience when his holdings in Argentina lost value due to a lack of liquidity and exchangeability.
The housing market, valued at $330 trillion, presents an interesting case study. While it is a valuable asset for storing wealth, its limited liquidity and regulatory constraints make it a poor medium of exchange. In contrast, assets like bonds and equities, valued at $300 trillion and $115 trillion respectively, demonstrate a better balance between store of value and medium of exchange functions.
Gold, often touted as the ultimate store of value, has a market value of $16 trillion but trades at $54 trillion annually. This discrepancy highlights the importance of liquidity and exchangeability in determining an asset’s true value. Similarly, the global money supply of $120 trillion is dwarfed by the transaction volumes of central banks, indicating the significance of the medium of exchange function in the financial system.
Bitcoin’s market cap of $2 trillion and annual transaction volume of $3.4 trillion underscore its role as a medium of exchange. With the Lightning Network expanding its capabilities, Bitcoin’s utility as a medium of exchange is becoming increasingly apparent. This challenges the prevailing narrative of holding Bitcoin indefinitely and emphasizes the importance of using it for transactions and economic activity.
In conclusion, while storing wealth is essential, the true power of Bitcoin lies in its function as a medium of exchange. By enabling seamless and efficient transactions, Bitcoin has the potential to revolutionize the financial system and empower individuals worldwide. Embracing Bitcoin’s medium of exchange capabilities is key to unlocking its full potential and building a more inclusive and sustainable financial ecosystem.