A Logged Look at Bitcoin

If you believe the world is in base e, then this is a better picture of the Bitcoin’s progress.

Figure 1: Dollar price of Bitcoin (blue, left log scale), and log first difference of dollar price of Bitcoin (red, right scale).  Source: Coinbase via FRED, and author’s calculations.


49 thoughts on “A Logged Look at Bitcoin

  1. Barkley Rosser


    Of course putting this into log form in some sense reduces the time pattern of this. In particular it sort of understates how the time to have made big money on bitcoin was before that peak in 2017 at just shy of $20,000. Within a period of just about two years from 2015 to that peak the price increased by roughly two orders of magnitude, 100 times, and, of course, the increase was a lot more dramatic if one were to push this back some years earlier. Anybody buying very early and hanging on clearly made a lot of money, which is why so many people are so enthusiastic about it and trying to make the case that somehow this really is socially useful, the case for which looks awfully weak to a lot of this, including by most economists who have commented on this.

    After the sharp decline in 2017, the market did not move all that much for awhile, but then we got more upward movement. But in fact over a four year period instead of a 100-fold increase what we have seen has been more like a doubling roughly, although given how high the price has gotten the amounts of value involved here have become much more noticeable, trillions of dollars in aggregate. But the days of super massive increases are over, even if he market does recover and returns to mostly going upward further.

  2. Bruce Hall

    Anything can be a medium of exchange if enough people are willing to participate… even tulips.

    1. pgl

      Seriously? You participated in that bubble too? I guess now that you have figured out that bleach does not treat COVID 19, you were hoping it would become a medium of exchange.

      Now if you knew anything about this issue, you would not have written such a silly statement.

    2. pgl

      The Journal of Political Economy published this interesting discussion on commodity money v. fiat money some 32 years ago. It seems Bruce Hall has not read it. I would say he should but I doubt he would comprehend a word of it:


      Of course even the dimmest student in an undergrad money and banking class gets the need for an efficient medium of exchange, a standard of value, and a store of value. Tulips fail miserably on all three accounts. Of course Bruce “no relationship to Robert” Hall failed money and banking.

    3. macroduck

      First bit is perhaps true in the abstract, but not in reality. Anything which is inconvenient to use as a medium of exchange will not be used. If you’ve never seen price stickers denominated in tulips, then tulips are not a medium of exchange.

      Even if you meant a store of wealth, the claim would be questionable. Tulips bulbs are a commodity. Tulip futures amounted to a (not always enforceable) contract and a speculative instrument, different in some aspects from a store of wealth, certainly from a medium of exchange.

      1. Barkley Rosser


        Unit of account, what prices are stated in, is a separate function from medium of exchange. On the US frontier coonskins were a medium of exchange, but ptices were never denominated in them. We have also had abstract units of account that never had any physical existence and were never used as media of exchange. A high level current one is the SDR. There are no actual SDRs. When nations borrow from the IMF their debt is measured in SDRs, but they receive some package of national currencies (or a super national one in the case of the euro), and when they pay interest or repay the loan, they pay back in some package of national currencies that add up given exchange rates at the time to the requisite amount of SDRs.

        Oh, and they cannot pay in coonskins or gold or cryptocurrencies or cowey shells for that matter, an item used as a medium of exchange in many nations from Asia through Africa and into the Americas, but also never a unit of account.

        1. Barkley Rosser

          cowrie shells, maybe the most widespread medium of exchange in the world ever.

        2. macroduck

          Look, I decided once to let your wretched building slide and all that happened was that you lapsed into into the same behavior again. I have no interest in engaging with you. It’s all preening on the one hand, tantrums on the other. Shove off.

          1. Barkley Rosser

            This screed is directed at me, macroduck? Oh, I guess you are back into channeling Moses Herzog’s hatred toward me. OK.

            But I really do not see what set you off here, if as appears you are gong off on my comment above about units of account and media of exchange.. I made what are simple textbook points about how functions of money are distinct from one another and different things can perform different ones of those functions. I provided examples. I also note that there were zero personalistic remarks. I did not say you were ignorant or stupid, and in fact I do not think you are either. But occasionally you lose it and say indefensibly stupid and offensive things as this last comment is.

            Shame on you and grow up. And get out from under the control of that frothing, lying sicko, Moses Herzog.

            Of course you could try to prove that you actually have a substantial complaint or evidence that this was all “preening” and a “tantrum” by me by perhaps actually explaining why my literally textbook argument and examples are wrong. But I kind of remember the last time you got yourself all worked up here you never did deal with the substance of the argument that got your knickers all out of whack.

          2. Barkley Rosser

            So, really, perhaps it is useful to remind everybody what one finds, with some minor variations, in pretty much every introductory economics principles textbook about what money is. The usual story is that true money is anything that fulfills all of the functions of money, with generally three such functions, although occasionally one sees another one or two, such as unit for deferred payment. But the big three are 1) widely accepted medium of exchange (which is usually the lead definition all by itself in most dictionaries), 2) unit of account, and 3) store of value.

            Now maybe macroduck somehow considers personally insulting to him to point this out, but in fact we see all kinds of things performing some of these functions but not others, with usually things that perform as many as two getting labeled “quasi-money,” or some variation thereof. Of the three functions, the store of value one is performed by lots of things that do not do any of the others, with most of these having ups and downs in value over time. An example of a one of the most famous and favored such stores is land, which certainly has never performed either of the other two functions, although a few currencies have supposedly been backed by land, such as the German rentenmark, which collapsed to essentially zero value during the early 1920s hyperinflation, which being backed by land did not prevernt.

            Next most widely spread item is medium of exchange, where the list of things that have been so used is very long, with most of these simply spontaneously emerging, such as cigarettes in prisons. Coonskins really were used on the frontier in some American colonies, with some of those even taking them in payment for taxes. in Virginia tobacco receipts so emerged (many claim tobacco itself was used, although apparently it was these receipts). And indeed cowrie shells have been used across much of the world, although almost nowhere (a few states in West Africa) having any official standing.

            The function least widely spread is the unit of account, which is in the modern world mostly assigned by governments. My earlier point noted that sometimes these are strictly abstract. It is not just the SDR, but during the transiton to adopting the euro there were several years when it was the unit of account of the eurozone but there were not yet any actual euros, with national currencies still being used, but all fixed to each other and the new abstract euro.

            So, the US dollar is real money: it fulfills all three of these functions. Cruptocurrencies are mostly stores of value (although highly volatile) and sometimes serve as media of exchange, although not much. But they are not units of account, and the idea pushed by some enthusiasts that any of them will become units of account looks to be total fantasy.

            While textbooks give the story I have just told, it is the case that different schools of economic thought emphasize different ones of the functions. So Austrians, starting especially with Carl Menger, have long emphasized the medium of exchange function, with Menger especially emphasizing the spontaneous emergence of such media of exchange in the form of various commodities in “primitive” economies.

            At the opposite extreme we have the chartalist view, which has strongly influenced MMT views of money by people like Wray and Kelton., not to mention for awhile by Keynes. So this view says that real money is a unit of account based on whatever the government accepts for tax payments. In any case, despite whatever some here may think, what serves this function may well not be the most widely accepted medium of exchange in a society.

          3. Barkley Rosser

            BTW, one way the unit of account can get separated from the medium of exchange is if there is simply little of what makes the unit of account around. A good example of this is indeed colonial US, where the official unit of account was the British pound. That is what prices were denominated in. But in fact for most of the colonial period, mostly due to the highly mercantilist policies of Britain, there were very few actual British pounds in the colonies. So they ended up using all sorts of things that they did actually have around, like coonskins and tobacco receipts.

    4. baffling

      so does gold. so do dollars. what is your point, bruce, other than trying to be a smart alec?

    5. Barkley Rosser


      No, tulips were never a medium of exchange. however, like a lot of cryptocurrencies they were for awhile objects of speculative buying and selling.

  3. baffling

    i am struck by the amount of volatility in bitcoin. i am also struck by the one way direction of the price increase. prof chinn thank you for the post.
    goldman sachs just called crypto a new asset class. its kind of neat watching it emerge right before our eyes.

    1. pgl

      Volatility in the value of any good makes it a terrible standard of value. Of course Bruce Hall wants us to go to a tulip standard which strikes me as being even dumber than going back to the gold standard.

    2. macroduck

      A productive asset mus be used in production. Financial assets generally produce a financial return rather than a marketable product. Even FX produces a financial return in that FX positions are often held as a money market instrument. Do cryptocurrencies carry an explicit yield? Whether cryptocurrencies are an asset class is a linguistic issue, as much as a technical one, I suppose.

      Goldman being Goldman, they of course declare themselves to be in charge of deciding what is an asset and what is a class. I’d like to hear from Blackrock.

      1. macroduck

        Interesting that Goldman says cryptocurrencies are a new asset class at the same time Goldman’s latest “Top of Mind” carries Roubini saying cryptos are neither currencies nor assets: https://www.goldmansachs.com/insights/pages/crypto-a-new-asset-class.html

        Nouriel has been looking into cryptos for some time now, I suspect at least in part because financial journalists were trying to pigeon-hole him as an art market authority. Art leaves out a bunch of Nouriel’s skill set.

        1. pgl

          Bitcoin and other cryptocurrencies aren’t assets. Assets have some cash flow or utility that can be used to determine their fundamental value… Bitcoin and other cryptocurrencies have no income or utility. – Nouriel Roubini

          1. Barkley Rosser


            There are plenty of assets lacking cash flow. Many stocks provide no cash flow, especially a lot of hot new high tech ones. Gold is clearly an asset, but it has no cash flow.

        2. Barkley Rosser

          Roubini is wrong about them not being assets. They are that, although highly volatile ones.

          1. baffling

            during the financial crisis, roubini made a name for himself. but over time, my view is he was nothing more than a broken clock. i have not really found much unique value to what he spouts to the media.

          2. pgl

            Roubini might counter than an asset should at least have an expected future cash flow. Which is why valuation is hard – one needs to model expectations of the future. Then again some things we call assets have a market value divorced from the fundamentals.

          3. Moses Herzog

            If young people want to play with bitcoin/crypto, that’s fine. But my question is, how volatile does something have to be, while at the same time being incredibly illiquid, for it to no longer be labeled an “asset”?? It has two redeeming qualities (no pun intended) which are really one and the same, anonymity, and a way to sidetrack capital controls (which is why Chinese citizens love it so much, and are often the dictators of the value of it). Outside of that, it’s a major chore to find anything good about it. I think in large part “asset” is a subjective term , not matter what bullet point children’s games a college prof wants to play with something to label it an “asset”.

          4. baffling

            “and a way to sidetrack capital controls (which is why Chinese citizens love it so much, and are often the dictators of the value of it)”
            and some people try to claim it is useless!
            as i discussed with joseph, bitcoin may be a solution in search of a problem. moses, you may have just found the problem for us.

          5. Moses Herzog

            @ baffling
            Although I appreciate the compliment, I didn’t find it, many other observers wiser than me have noticed this years ago. It is something that gets my attention more because I remember my Chinese friends asking me what to do with their money, and we would discuss currency values and safe places to park their money (I was flattered at that time also that they asked me, I gave them probably very bad advice , certainly in terms of tangible results to stay away from 98% of Chinese equities at that time, which they probably kick themselves they ever asked me now). Even in the early 2000s Chinese wanting a better way to keep stable their personal wealth was a hot topic. Real estate was a super hot topic for Chinese towards the tail end of my time there, about 2006—2008.

            I have love/hate feeling towards China (I’ve always tried to be honest about that). There are people over there that I no longer have contact with, that I would probably throw myself in front of a train for if they asked me, and others I knew there, I would probably rather push in front of the train. So…… it always enters my mind a lot, and you can see how China effects crypto a lot, although Chinese citizens’ capital moves probably is a less significant factor in crypto than China was 10 years ago, but you can still gauge some there.

          6. Baffling

            I can tell you this, many older chinese are still looking for efficient ways to transfer money out of the country. Many are willing to pay upwards of 10% in fees. For example, gold is possible but by no means a cheap way to export their money. I certainly see why crypto is a popular method. The ccp has tried to shut down crypto by the energy argument, but i have felt all along it had to do with capital controls. One problem with bitcoin in particular is its popularity in china puts it a bit too much under the influence of the ccp.

      2. baffling

        “Do cryptocurrencies carry an explicit yield? ”
        well some of the crypto exchanges are starting to offer 6% interest on crypto held on their site. not sure if this is what you really mean, but putting it out there anyways.
        some of the cryptos, such as ethereum, seem to be a mix of currency and financial tool. seems to be a solution looking for a problem, today. but if it ever finds the appropriate problem, look out!

        1. Dr. Dysmalist

          “some of the cryptos, such as ethereum, seem to be a mix of currency and financial tool. seems to be a solution looking for a problem, today. but if it ever finds the appropriate problem, look out!”

          That’s been my impression of crypto from the start, that it’s a solution in search of a problem. In countries where the central bank is explicitly under political control, and subject to the pressures and whims of partisan politics, I kinda get it. That’s why there’s such strong opposition to likes of Stephen Moore and Judy Shelton being appointed to the Fed Board here.

          OTOH, the volatility and the sheer societal cost of creating, especially, Bitcoin militate strongly against crypto as it’s being implemented today being the appropriate solution. In those types of countries I mentioned, I am sympathetic to the desire for a monetary authority that’s independent of the political process but I think a different solution is in order. China’s (read: the CCP’s) outline for a central bank version of crypto doesn’t bode well either for the simple and obvious reason that increased social control by the central authority is an obvious and, probably inevitable, result.

          Here in the US, I don’t think crypto solves any problems we may have in our financial or monetary systems. The enthusiasm for it that I’ve seen seemed to stem from techbros who fundamentally misunderstand the Fed’s origins, mandate, and function, and mechanisms. Their arguments were adopted/amplified by those who lionize techbros, adding heat, but no light, to the debate.

          Now, if one wishes to initiate a discussion about whether bankers, i.e., the banking industry, exercise some degree of hegemony over the Fed’s regulatory actions, both financial and monetary, I think there’s a fruitful discussion to be had over that question, and if the answer is yes, the extent of it and its effects, ad well as how we solve it. However, I think crypto cannot and therefore will not solve any problems which may exist in this realm, either.

          1. Barkley Rosser


            The enthusiasm comes from people making money from speculating on the cryptos, and a lot of people have made a lot doing so. Their justifications beyond that are largely fantasies, except of course for criminals using them to hide their transfers.

          2. baffling

            if the us develops its own cryptocurrency, which is beneficial to society, then the bitcoin experiment will have been successful. sometimes an imperfect model must appear to spur on betterment.
            as i have stated before, i think crypto in the form of ethereum (or another similar crypto) rather than bitcoin is the future value of the field. bitcoin just started the discussion. ethereum is both a digital dollar and a tool. it has a better use case. i don’t look at all crypto equally.

  4. pgl

    Someone popped this NYTimes article on how the US is supporting the OECD’s push for a 15% global minimum tax up on LinkedIn:


    Alas a slew of comments ensued from people who are so right wing that they would make our Usual Suspects look like Bernie Sanders. Yes – it was sort of disgusting reading their intellectual garbage on LinkedIn, which I guess has been taken over by the MAGA crowd.

  5. joseph

    “i am struck by the amount of volatility in bitcoin. i am also struck by the one way direction of the price increase.”

    Which are two reasons bitcoin is useless as a medium of exchange.

    First, you don’t know from one minute to the next what the value of the currency so difficult to complete a deal for goods or services.

    Second, if the long term trend is always upward, then nobody will use it for purchasing anything because it’s value is likely to be greater tomorrow. That’s the problem of a deflating currency. The amount of commercial transactions using bitcoin is minuscule. Most of the transactions are speculators trading bitcoin with each other speculating on the daily volatility.

    1. Barkley Rosser

      Not clear that it is a “one way increase.” After the peak somewhere in 2017 it took a good three years for the price to get back up to that peak. Yes, it has since moved well beyond that, but it it now down quite a bit from its most recent peak. It got about as high as $57,000 or so, but as of today it is about $37,000. And there is no guarantee it will get going and move above that most recent peak anytime soon, if ever.

    2. Baffling

      One group of bitcoin supporters argue the value of bitcoin is as a store of value, not as a digital dollar. Thus far, it has held its value well in that regard. Volatility is less of an issue in that regard. Bitcoin is more of a digital gold than a digital dollar.

      1. Barkley Rosser

        Not if you bought it at its local peak of $19,000 in 2017 and wanted to cash it in for use to buy something real during the following three years.

        1. baffling

          gold has also had peaks that were followed by a drop, during which if you wanted to cash it in for a few years you lost value. this is not unique to bitcoin. when i say store of value, i don’t imply it is necessarily stable, especially in the short run. it is volatile. but over the longer run bitcoin has most certainly more than satisfied the store of value criteria. even those safe treasuries can suffer losses.
          one thing i read recently regarding crypto, and was surprised by the magnitude. several of the crypto exchanges apparently allow certain individuals to buy on margin, and some apparently have gotten 100 to 1 leverage. this has led to some of the spectacular gyrations we have seen in crypto. steven asked about leverage in crypto a few days ago. this is the first time i was made aware that there are some corners of crypto with significant leverage, although it seems to be limited to professional investors on those sites. if somebody knows any details about how much leverage is out there, would really like to know. that could be problematic.

          1. Barkley Rosser

            I would agree that in many ways bitcoin is like gold, although gold does have both clear real world uses that bitcoin does not, as well as a long history of having been recognized by governments as actually being money, although it has always been so rare and high value that it has never been a general widely used medium of exchange. Nevertheless it was used at one for limited high value transactions, which is indeed what seems to be what goes on with bitcoin now, although it does not have the recognition by governments gold did.

            I find it funny that something as volatile as bitcoin is being touted as a “store of value.” Of course, again, if somebody bought it early and has held onto it, they have come out way ahead so far.

          2. Barkley Rosser


            BTW, the joke about gold as a “store of value” is that in fact there have been some pretty long stretches where if one bought at a peak in its price it was below that peak. The most recent such long stretch was the roughly 20 year stretch after its bubble burst in 1982. Pretty crummy store of value if you needed to cash in your holdings you bought at that peak for quite a long time.

            Oh, one other area where gold arguably has a lot more credibility than any crypto is that even though it has not had any official role anywhere for coming up on a half century as of August 15, is that it continues to be held in quite substantial quantities by most of the major leading central banks in the world. Heck, the Chinese one was doing regular buying of it for some time not all that long ago, arguably helping to keep it above $1000 an oz at one point a few years ago. And although one hears about Fort Knox, the largest amount owned in the US is actually in the basement of the New York Fed, just in case we have any wannabe Goldfingers out there.

          3. baffling

            from my own experience, i no longer consider the concept of “store of value” to imply stable and positive. very few things hold those characteristics as well as being liquid. nevertheless, it seems people are always trying to find the perfect product as a store of value. prior to the real estate bubble of 2007, i think a lot of people considered real estate a store of value in the sense it steadily (albeit slowly) increased its value, but with some liquidity issues. people always seem to be looking for the next great asset, rather than simple cash, to store their wealth.

            at any rate, just want to reiterate i am not a bitcoin bug or anything. i only own a small position in ethereum, enough to make me pay attention. i have appreciated most of the comments on this blog regarding this topic, it has been helpful to hear different perspectives. and thanks to prof chinn for posting about the topic. i don’t think the topic disappears anytime soon, so the more we learn the better.

  6. ltr


    May 25, 2021

    Remembrance of futures past
    By Paul Krugman

    Last week I wrote about cryptocurrency, * which is sort of becoming the monetary equivalent of the old joke about Brazil: “It’s the country of the future, and always will be.” The article drew a predictable wave of outrage from crypto fanatics — and there are no fanatics like crypto fanatics. What probably offended them most was my observation that this “revolutionary” technology is actually getting kind of old — Bitcoin was invented in 2009 — and has yet to find significant legitimate uses.

    Cryptocurrency isn’t the only technology to disappoint. Self-driving cars were supposed to be ruling the road by now. And basically nothing in the 1968 movie “2001: A Space Odyssey” has happened yet; neither the space hotel nor the homicidal computer. (OK, we do have video calls.)

    Not everything has fallen short. Solar and wind power have made incredible progress. And I assume I’m not the only person who, forced into trying new things during quarantine, discovered that you can produce some pretty amazing meals in an electronic pressure cooker.

    Still, the data bear out the general sense that the real-world utility of new technology has fallen far short of the hype. Labor productivity — real output per person hour — has risen only about half as fast since 2007 as it did in the generation after World War II. Why measure from 2007? Well, it was the eve of the financial crisis; but it also happens to be the year Apple introduced the original iPhone. So much technoglitz; so little G.D.P. Why?

    A new paper ** by Erik Brynjolfsson, Seth Benzell and Daniel Rock tries to answer that question; to their credit, given that Brynjolfsson in particular has built a career emphasizing the revolutionary changes technology is bringing, one of their options is that when all is said and done, new technologies, while eye-catching, aren’t all that. Their favored explanation, however, boils down to: just you wait. The idea is that it takes a while for businesses to figure out how to make the best use of radical new technologies, and that you shouldn’t expect big things until they do.

    I like this argument, and I would find it persuasive … if I hadn’t heard it all before.

    You see, this isn’t the first time information technology has disappointed. During the 70s and 80s computers proliferated with astonishing speed; you young whippersnappers have no idea how big a deal it was to have your own screen and keyboard sitting on your desk. Yet the economy remained mired in a long stretch of productivity stagnation. As the great M.I.T. economist Robert Solow remarked, “You can see the computer age everywhere but in the productivity statistics.”

    Enter the economic historian Paul David, with a fascinating 1990 paper *** titled “The Dynamo and the Computer.” David showed that it took decades before the advantages of electrification really showed up in economic growth, because it took time before, to take one example, manufacturers realized that replacing overhead shafts and pullies with electric motors meant that factories could be sprawling structures with wide aisles, not cramped multistory buildings with a steam engine in the basement.

    David’s point was that we could expect something similar with computers: eventually businesses would learn what to do with them, and productivity would surge. Sure enough, around 1995 U.S. productivity growth really did take off, beginning a rocket-like ascent.

    Which lasted for around a decade, then stalled out….

    * https://www.nytimes.com/2021/05/20/opinion/cryptocurrency-bitcoin.html

    ** https://www.brookings.edu/techstream/how-to-solve-the-puzzle-of-missing-productivity-growth/

    *** https://www.jstor.org/stable/2006600?seq=1

    1. ltr


      January 15, 2018

      Nonfarm Business Productivity, * 1948-2021

      * Output per hour of all persons

      (Percent Change)


      January 15, 2018

      Nonfarm Business Productivity, * 1948-2021

      * Output per hour of all persons

      (Indexed to 1948)


      January 30, 2018

      Manufacturing and Nonfarm Business Productivity, * 1988-2021

      * Output per hour of all persons

      (Percent change)


      January 30, 2018

      Manufacturing and Nonfarm Business Productivity, * 1988-2021

      * Output per hour of all persons

      (Indexed to 1988)

  7. ltr


    May 25, 2021

    Major Bitcoin mining hub in China issues harsh crackdown measures on cryptocurrency activities

    North China’s Inner Mongolia Autonomous Region, a major hub for Bitcoin mining, issued on Tuesday night what appears to be the harshest crackdown measures yet on mining activities with revocation of licenses for telecom and internet companies that engage in cryptocurrency mining activities.

    Following recent warnings and actions against cryptocurrency mining, the regional development and reform commission issued eight draft measures against mining activities in the region.

    Among the harsh crackdown measures proposed, is possible revocation of licenses for telecom and internet companies that engage in mining activities. Companies would also be held accountable with rigor, according to the draft measures.

    Big data centers and cloud computing firms could also face cancellation of policy support by the government if they engage in cryptocurrency mining activities….

    1. ltr

      Inner Mongolia was a province with ample amounts of inexpensive power that Bitcoin miners took advantage of.  However, China is building out an Ultra-High-Voltage electricity transmission network that means power from Inner Mongolia can now be used in regions at a considerable distance.  Power then is to be “better” used than for Bitcoin mining.

      Also, financial speculation can easily be market disrupting though that possibility was already limited by national regulators.

    2. ltr

      Referenced by Paul Krugman:



      On the Nature, Accumulation, and Employment of Stock

      On Money considered as a particular Branch of the general Stock of the Society, or of the Expense of maintaining the National Capital

      It is not by augmenting the capital of the country, but by rendering a greater part of that capital active and productive than would otherwise be so, that the most judicious operations of banking can increase the industry of the country. That part of his capital which a dealer is obliged to keep by him unemployed, and in ready money, for answering occasional demands, is so much dead stock, which, so long as it remains in this situation, produces nothing either to him or to his country. The judicious operations of banking enable him to convert this dead stock into active and productive stock; into materials to work upon, into tools to work with, and into provisions and subsistence to work for; into stock which produces something both to himself and to his country. The gold and silver money which circulates in any country, and by means of which the produce of its land and labour is annually circulated and distributed to the proper consumers, is, in the same manner as the ready money of the dealer, all dead stock. It is a very valuable part of the capital of the country, which produces nothing to the country. The judicious operations of banking, by substituting paper in the room of a great part of this gold and silver, enables the country to convert a great part of this dead stock into active and productive stock; into stock which produces something to the country. The gold and silver money which circulates in any country may very properly be compared to a highway, which, while it circulates and carries to market all the grass and corn of the country, produces itself not a single pile of either. The judicious operations of banking, by providing, if I may be allowed so violent a metaphor, a sort of waggon-way through the air, enable the country to convert, as it were, a great part of its highways into good pastures and corn-fields, and thereby to increase very considerably the annual produce of its land and labour. The commerce and industry of the country, however, it must be acknowledged, though they may be somewhat augmented, cannot be altogether so secure when they are thus, as it were, suspended upon the Daedalian wings of paper money as when they travel about upon the solid ground of gold and silver. Over and above the accidents to which they are exposed from the unskillfulness of the conductors of this paper money, they are liable to several others, from which no prudence or skill of those conductors can guard them.

      — Adam Smith

  8. joseph

    Hey, it turns out that bitcoin actually is an interest bearing asset. It seems that there are exchanges that will pay you 6% to 8% interest to loan out your deposited bitcoins. Are you loaning to to prospective revenue earning enterprises and businesses? Nope, you are loaning to other bitcoin speculators who are leveraging 2x, 10x or even 100x. So your interest stream and return of principal is based on the hope that bitcoin prices will just keep rising and there are no margin calls. Nothing could go wrong here, right?

    1. Baffling

      That is what has been driving the very high volatility, especially recently, from what I understand. Not sure if that is the fault of the asset, however.

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