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Gresham's Law has nothing to do with Bitcoinpablohere.contrapeso.xyz/writings/gresham-law-has-nothing-to-do-with-bitcoin.html
10.3k sats \ 19 comments \ @pillar 26 May bitcoin
People get into this confusion constantly. I'm this post can act as a summary to point people to when that happens.
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296 sats \ 4 replies \ @SimpleStacker 26 May
I don't agree. Gresham's law is originally about the commodity value of the currencies, but I'd argue that limiting its application to currencies with commodity value is too narrow.
More generally, Gresham's Law says that the currency which is perceived to be undervalued by the market won't circulate because people would rather hold onto it. In this instance, most Bitcoin hodlers perceive Bitcoin to be undervalued by the market and thus prefer to spend fiat while holding bitcoin.
I think it's a proper application of Gresham's Law to explain why Bitcoin circulation is low, but I don't think it's the only explanation for why circulation is low.
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41 sats \ 2 replies \ @denlillaapan 26 May
perceived to be undervalued by the market
this is incorrect. It's not a subjective perception, but an arbitrage-style price ceiling/floor guaranteed by a mint or a government.
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44 sats \ 1 reply \ @SimpleStacker 26 May
Right, i agree, but all I'm saying is that whether by perception or by objective arbitrage, the strategic incentives are similar, resulting in similar dynamics.
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10 sats \ 0 replies \ @Undisciplined 26 May
The important difference is that there's no fixed exchange rate with bitcoin.
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0 sats \ 0 replies \ @pillar OP 26 May
Well, if you want to take Wikipedia as a common definition...
Under Gresham's law, "good money" is money that shows little difference between its nominal value (the face value of the coin) and its commodity value (the value of the metal of which it is made, often precious metals, such as gold or silver),
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110 sats \ 5 replies \ @oomahq 26 May
Hans-Hermann Hoppe disagrees :) Excerpt from the Gresham's Law Wikipedia article that you linked:
Austrian economist Hans-Hermann Hoppe said that "so-called Gresham's law" only applies under certain conditions, largely a result of governmental interventionist policies. In his 2021 book, Economy, Society, and History Hoppe states:
You might have heard about the so-called Gresham's law, which states that bad money drives out good money, but this law only holds if there are price controls in effect, only if the exchange ratios of different monies are fixed and no longer reflect market forces. Is it the case that bad money drives out good money under normal circumstances without any interference? No, for money holds to exactly the same law that holds for every other good. Good goods drive out bad goods. Good money drives out bad money, so this bezant was for something like 800 years considered to be the best money available and was preferred by merchants from India to Rome to the Baltic Sea.
Even though contemporary currencies are not backed by nor made of precious metals I can think of a similar real-life situation to the one you described in the blogpost: when one fiat currency pegs to another and then (hyper)inflates away (e.g. the Argentinian peso in 2001).
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20 sats \ 1 reply \ @Brunswick 27 May
This has been nagging me for many years. I believe I've reasoned it through. Given Gresham's law, how can bitcoin dominate in the presence of inferior money?
Obviously there are many inferior forms of money, so what is meant by "bad money drives out good?" The paper below explains why bitcoin will eventually drive out fiat. nostr:naddr1qqgxgwfj8pnxxwfn8ymnxd3hvvexvq3qc856kwjk524kef97hazw5e9jlkjq4333r6yxh2rtgefpd894ddpsxpqqqp65wzzmpg4
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5 sats \ 0 replies \ @oomahq 27 May
We need to work on repealing Capital Gains Taxes and FIFO accounting everywhere.
The absence of this nonsense in fiat currencies is their biggest advantage over Bitcoin as a medium of exchange.
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20 sats \ 2 replies \ @Hodl117 27 May
Based off the quote in your comment, I think it doesn't apply to BTC/USD because the exchange rate fluctuates, and no one has enforced an exchange rate between them.
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0 sats \ 1 reply \ @oomahq 27 May
True, but most countries in the world impose capital gains taxes and FIFO accounting in order to use and spend Bitcoin "legally", which is still a pretty onerous interventionist policy.
This combined with Bitcoin's intrinsically superior SoV properties is enough to drive it out of circulation almost completely.
Repealing CGT is mandatory for Bitcoin to thrive as MoE at scale. I visited Lugano last year and I was amazed at the number of businesses where I could pay with LN (even real state agencies advertised they accepted payment in BTC). Switzerland doesn't have CGT.
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0 sats \ 0 replies \ @nitter 27 May bot
https://xcancel.com/oomahq/status/1916575984486121666
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15 sats \ 0 replies \ @OT 27 May
Whether we called it Gresham's law or not it's a similar outcome. People that understand the difference will spend their bad money and hold onto the good money.
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22 sats \ 1 reply \ @k00b 26 May
If Gresham's law only applies to money with differences in face value and commodity value, perhaps we need another law to describe what happens with bitcoin?
I think some people interpret bitcoin's "commodity" value as, effectively, infinity and its face value as the exchange rate.
Do you disagree that Gresham's Law at least applies in spirit here? If not, is there a concept in economics that describes people not spending hard money when they can spend easy money?
P.S. Your blog looks awesome. Do you have RSS setup for it? Also, where are these 3D printed maps you list in your interests?
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100 sats \ 0 replies \ @denlillaapan 26 May
YES, this is the way.
As for the hard-easy dispute. Not so clear:
If not, is there a concept in economics that describes people not spending hard money when they can spend easy money?
economics (and esp finance) generally take Law of One Price to rule everything, meaning that a distinction between hard and easy is very unorthodox... what do you mean "hard," there's just money and it trades against other goods, services, and assets
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0 sats \ 3 replies \ @denlillaapan 26 May
yeeeessss indeed. #738907
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27 sats \ 2 replies \ @pillar OP 26 May
Good call.
Lyn making a wrong move is quite a sight. I think it's the first time I see that.
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15 sats \ 1 reply \ @denlillaapan 26 May
raaaaare.
...though she'd probably agree, and take a SimpleStacker approach here that it's an outdated/inappro term for our times and be happy to expand its meaning
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0 sats \ 0 replies \ @SimpleStacker 26 May
Yep, @SimpleStacker is on the same side as Lyn Alden! and those who disagree with us are pedants.
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0 sats \ 0 replies \ @hasherstacker 27 May
People in this coiny fantasy land are not stupid — they know that the gold content is what matters. At some point, someone will realize the bad coins don't have as much gold as they claim and will develop a preference for the good ones. So, if I'm John the Blacksmith and I want to buy some iron, and I have a stash of coins — some good, some bad — I would rather keep the good coins and spend the bad coins. Why? Because I want to keep as much gold as possible, of course.
Does this apply to people spending fiat instead of sats?
So, if I'm John the Blacksmith and I want to buy some iron, and I have a stash of coins — some good, some bad — I would rather keep the good coins and spend the bad coins. Why? Because I want to keep as much gold as possible, of course.
Here again. If everyone would rather spend the bad coins and keep the good ones, doesn't this gives the bad coins a chance of being superior over the good ones in circulation?
I mean this is interesting.
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