USD changes at a rate of 3% per year, according to the CPI.
Bitcoin is currently changing at a rate of 50% per month.
Volatility is a bad thing for currency. Bitcoin has too much of it right now.
And sorry, as long as BTC keeps changing by 50%+ per month, it will only be a proxy currency. If BTC is to become a true currency, it will need to settle down to ~3% / year volatility, like the other major currencies of the world.
Yeah, this. Right now, BTC is more of a speculative investment than it is a currency. You just can't have insane volatility or even too much uni-directional movement in your medium of exchange.
For a merchant to offer something at a particular BTC price, that merchant would have to update its prices at least daily, if not more so. This to avoid losing money or overcharging himself out of the market, depending on the direction of the currency. It's just not practical at this point.
And, it's a catch-22: As long as it's a speculative investment, it's likely to remain volatile. And, as long as it remains volatile, it's likely to remain a speculative investment vs. a "true" currency.
Thats a bit of a logical fallacy. Just because modern currencies tend to not exhibit volatility, doesn't mean its a bad trait for a currency. In the past, ideas like "menu costs" might make it less favorable because of sticky prices not aligning with a free floating currency, but that isn't as much of an issue anymore. The real issue would be if the underlying fundamentals, IE the supply and demand of the currency, didn't align, making the volatility due to human expectations and not genuine factors.
While I think that a good deal of the BTC volatility is due to human expectations, it just bothers me when people try and use older macro ideas when explaining Bitcoin.
Scribophile cannot sell services based on BTC at the moment, because the BTC market keeps swinging by 50% or more each month. It is impossible to peg the price of anything to BTC right now.
Have you read my post? I even mentioned "menu costs" in my response.
The issue is not that the currency has volatility, but that they refuse to peg the value. Scribophile is facing menu costs, but the menu costs are of their own creation. Simply allowing their prices to fluctuate with value would solve the problem. My point was that technology can make volatility a much smaller issue than it was in the past, hence why using old currency paradigms hinders thoughtful examination of the costs and benefits of a currency like bitcoin.
Uh, do you realize big companies already put big hedges for the value of existing currencies to minimize the swings in value? That will not be possible with bitcoins with the current volatility since it will be way too expensive. That is bad for business and therefore also bad for the economy and the currency.
That alone doesn't prevent something from being a currency, it simply changes who prefers to use the currency, altering its supply and demand. Currencies have many characteristics and a "store of value" is just one. A volatile currency, may make a poor store of value and thus less favorable to companies that hold large cash accounts (the ones who have to do the hedging you mention), but this volatility may also make it desirable to other economic actors. By accurately reflecting the supply and demand (IE not having an artificially manipulated price as many global currencies do) bitcoin makes a much stronger medium of exchange than many other currencies in the world. The growing interest out of Cyprus is a great indication of this.
My main point was just that for a traditional controlled currency, volatility would be bad, but for bitcoins, which rely on supply and demand to set the price (this includes speculative demand), volatility is not necessarily a bad thing.
Bitcoin is currently changing at a rate of 50% per month.
Volatility is a bad thing for currency. Bitcoin has too much of it right now.
And sorry, as long as BTC keeps changing by 50%+ per month, it will only be a proxy currency. If BTC is to become a true currency, it will need to settle down to ~3% / year volatility, like the other major currencies of the world.