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.
Which function of money does Bitcoin fulfil least well?
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
More in Money, Crypto & CBDCs
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.