Bitcoin and Gresham’s Law

Another day, another mainstream news outlet showing off its inability to reason about Bitcoin economics. Today we have Bitcoin’s Wild Ride Shows The Truth: It Is Probably Worth Zero in the Wall Street Journal where James Mackintosh informs us that, among other reasons, Bitcoin will ultimately be worth zero because:

Even if bitcoin worked better, it is in a Catch-22 because of Gresham’s law, the nostrum that bad money drives out good. Given the choice of spending inflationary government-issued money or something which holds its value, everyone would spend the bad paper stuff and hoard the bitcoin.

That bad money would drive good money out of the market is a pretty amazing statement if you stop and think about it. Why would this be? In every other instance good products drive bad products from the marketplace. Yet money is presumed to be the exception to this rule. Mackintosh tries to pin this phenomenon on deflation, however this argument relies on poor reasoning is very easy to dismiss. I wont rehash the arguments here but will point you to a couple previous posts of mine [1, 2].

But more importantly “bad money drives out good” isn’t Gresham’s law! To understand the correct version of Gresham’s law, give the following video a watch:

2 thoughts on “Bitcoin and Gresham’s Law

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