Is Bitcoin Money?
Money serves three functions, a medium of exchange, a unit of account, and a store of value. Bitcoin works partly as a niche medium of exchange and a speculative store of value, but its volatility makes it a poor unit of account, so it behaves more like a speculative asset than money.
Why it matters
Picture quoting your rent in Bitcoin when its value can swing 10% in a day. The unit-of-account role needs stability, which is exactly what a volatile asset lacks.
Worked examples
Few merchants quote prices directly in Bitcoin. Which function of money does that reveal is weak?
The unit-of-account function. Sellers price in dollars and only convert to Bitcoin at the moment of payment, because a volatile unit is impractical for posting prices.
Common mistakes
- ✗Bitcoin is replacing national currencies. Everyday use as money is tiny, and it is held mostly as a speculative asset.
- ✗Anything digital counts as money. To be money it must serve the functions of money, and Bitcoin’s weak unit-of-account role is a real limit.
Revision bullets
- •Money is a medium of exchange, unit of account, and store of value
- •Volatility makes Bitcoin a weak unit of account
- •It behaves more like a speculative asset
Quick check
Which function of money does Bitcoin fulfil least well?
Connected topics
Sources
- Mishkin (2018), Ch. 3Mishkin, F. S. The Economics of Money, Banking, and Financial Markets. 12th ed. Pearson, 2018. ISBN 978-1-292-26885-9.The functions of money applied to cryptocurrencies such as Bitcoin.