After The Bitcoin Crash, Are Cryptocurrencies More Currency Or Commodity?

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Bitcoin prices have fallen hard in the last month, down about 40%. It seems as many people have been gleefully predicting the demise of cryptocurrencies as have been anticipating great returns. If cryptocurrency—whether in the form of Bitcoin, one of its cousins like Ethereum, or some yet-unimagined digital creation—are here to stay, will it come to look and act more as currency or as commodity?

Trading bitcoin online  ( JACK GUEZ/AFP/Getty Images)

The term cryptocurrency screams currency. The name Bitcoin is intended to create a mental image of money. The intention is to use Bitcoin as a tool for purchasing goods and services, but it is not legal tender.

Perhaps the best real argument to think of cryptocurrencies as currencies is that they are mimicking previous experiences with currencies. It is not unheard of to see a currency of a struggling nation fall off a cliff and lose 40% of its value in about a month. Inflation and deflation are common in modern economies, especially since it became uncommon to tie currencies to a standard commodity.

In 1971, the U.S. stopped tying its dollar to gold, meaning there is no physical commodity behind the value of a U.S. dollar today. Some countries peg their currency to the U.S. dollar, in hopes that the stability of the United States will protect their rates, but, ultimately, currencies appear to be largely floating in the wind like cryptocurrencies.

On the other hand, the underlying purpose behind the cryptocurrency movement seems to be the decentralization of power as a contrast to the existence of currencies. Central banks and governments now regularly interfere with the values of their currencies, raising and lowering rates, printing new money (oftentimes virtually), and trying to plan their economies. Switzerland is one country that has very actively sought to control its currency value, because it is vital for that small country to have a favorable exchange rate with the euro, which surrounds it. If the Swiss franc became too valuable, it would be hard for Switzerland to attract business from surrounding Europe.

Swiss francs (Shutterstock)

In this way, cryptocurrency is intended to be the antidote—not the replication of—modern currencies. Cryptocurrencies are designed to avoid central control, except by powers that manage to own it. Much like commodities are controlled by their owners and rarely by central government authorities (unless those are the owners).


Source: Forbes

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