Dr. Jeff on Nostr: Let's clear up some monetary concepts, since many popular economists and commentators ...
Let's clear up some monetary concepts, since many popular economists and commentators continue to mix them up.
Store of value (SoV):
The ability of an asset to maintain the owner's purchasing power over time. The greater the ability to do so over a longer period of time, the better SoV the asset has.
Medium of Exchange (MoE):
The ease of which an asset can be exchanged for goods and services, anywhere, and at any time.
Unit of Account (UoA):
Pertains to the short-term volatility of a monetary good. The higher the short-term volatility, the more difficult it is to use the monetary asset to price goods and services. (For instance, think of a small grocery store owner needing to put price tags on all of its food items. The more volatile the UoA, the more frequently he/she must adjust the prices, which is quite burdensome.)
With these definitions in mind:
- The US dollar is a poor SoV (but better than most/all other fiat currencies); an excellent MoE (the best in the world, in fact); and a very good UoA.
- In 2024, #Bitcoin is an excellent SoV (the best in the world, in fact); a poor (but slowly improving) MoE, and a poor UoA (given its extreme volatility).
FWIW, I expect Bitcoin to maintain its #1 SoV ranking indefinitely, while seeing slow improvements over the coming decade regarding its MoE and UoA capabilities.
Hope this helps. 🍻
Store of value (SoV):
The ability of an asset to maintain the owner's purchasing power over time. The greater the ability to do so over a longer period of time, the better SoV the asset has.
Medium of Exchange (MoE):
The ease of which an asset can be exchanged for goods and services, anywhere, and at any time.
Unit of Account (UoA):
Pertains to the short-term volatility of a monetary good. The higher the short-term volatility, the more difficult it is to use the monetary asset to price goods and services. (For instance, think of a small grocery store owner needing to put price tags on all of its food items. The more volatile the UoA, the more frequently he/she must adjust the prices, which is quite burdensome.)
With these definitions in mind:
- The US dollar is a poor SoV (but better than most/all other fiat currencies); an excellent MoE (the best in the world, in fact); and a very good UoA.
- In 2024, #Bitcoin is an excellent SoV (the best in the world, in fact); a poor (but slowly improving) MoE, and a poor UoA (given its extreme volatility).
FWIW, I expect Bitcoin to maintain its #1 SoV ranking indefinitely, while seeing slow improvements over the coming decade regarding its MoE and UoA capabilities.
Hope this helps. 🍻