Nothing causes people to lose their economic sense more than Bitcoin. I’ve had quite a few opportunities to highlight economic fallacies on this blog over the years. This time I’m going to call out Fred Wilson for this comment:
And that point is that you can’t keep spending something that goes up as much as Bitcoin has.
So I don’t spend Bitcoin anymore.
I hold it.
It’s a store of value now.
That much is clear.
Fred is an investor in the company I work for so I’ll try to take it easy on him :p
I see sentiments like this almost every day expressed on Twitter or Reddit. And it’s frustrating. Not just because I’ve spent several years now writing code for a project intended to get people to, you know, spend Bitcoin but more importantly because I view Bitcoin as a tool of liberation that will fall far short of its revolutionary potential if it becomes nothing more than a speculative trading asset.
But what about the underlying argument that you can’t spend something that goes up as much as Bitcoin has? I say it’s nonsense. Why? Let me offer a thought experiment first before getting to the point.
Using the same logic could not someone argue that it makes no sense to spend $250 on groceries when Bitcoin is going up so much? You say, “Well dollars aren’t skyrocketing in price”. Sure, but dollars can be easily converted into Bitcoin (with a small transaction cost). By spending money on food you are foregoing an opportunity to invest in Bitcoin. So what’s the difference? If it makes no sense to spend $250 worth of Bitcoin on groceries does it not also make no sense to spend 250 dollars on groceries as well?
The difference is the $250 you’re spending on groceries is coming from income you’ve earmarked for consumption spending. We all have living expenses after all. When we earn income we make a conscious decision to invest some (maybe in Bitcoin!) and spend the rest. When we spend money on things like groceries, entertainment, or coffee, we aren’t drawing down on our savings (most of the time), we’re just spending funds we planned on spending anyway.
I’ve spent quite a few Bitcoin over the years. You know how much of that came from my Bitcoin war chest? Zero. I first bought Bitcoin for less than $10 and that UTXO is still sitting there in the UTXO set. But that doesn’t mean I don’t spend Bitcoin. I’ve just only spent income I had already planned on spending. I suspect if you add up the current value of all the Bitcoins I’ve spent it would amount to a pretty penny. But I don’t feel even the slightest bit of remorse for having spent those coins because, again, I was going to spend that amount regardless of whether the value was denominated in Bitcoin or dollars. Now I do kick myself for not having a higher savings rate (I think everybody does), but I don’t loose any sleep over spending income that I had already planned on spending.
So should you spend Bitcoin? Of course! Next time you get paid, figure out how much you want to spend and how much you want to invest. Make your investments (preferably in Bitcoin) then take 10% of the remainder and convert it to Bitcoin and spend that online or in the various stores in your area that accept it. You’re only losing out if you don’t do that.