A sign of the times

While shopping online, I noticed a retailer with the following payment options:

I’m no expert on bitcoin, so please tell me if any of my assumptions are incorrect:

1. Bitcoin is increasingly widely used as a store of value and a medium of exchange, but not as a unit of account. In other words, retailers are not setting bitcoin prices, rather they are setting dollar prices and allowing the payment of an equivalent amount of bitcoin. Is that correct?

2. If point one is correct, then bitcoin affects monetary policy in much the same way that other money substitutes like credit cards, debit cards, and checks affect monetary policy—not much at all.

3. If point one is correct, then bitcoin “monetary policy” doesn’t affect the macroeconomy. A change in the supply of bitcoin doesn’t impact nominal aggregates (NGDP, CPI, etc.) A change in the use of bitcoin would only affect nominal aggregates if it were not offset by the central bank.



24 Responses to “A sign of the times”

  1. Gravatar of gt gt
    12. July 2021 at 15:43

    I’m not an expert on macroeconomics, but your point 1 is definitely right. No one wants to set prices in something that has the volatility of Bitcoin. (Imagine setting your price at the peak before it crashed in May! You’d have to be monitoring the BTC/USD exchange rate all the time.)

    I suspect that the companies doing this are mainly because it’s easy (probably just a checkbox in their payment processor) and it might get them publicity, plus on the margin it could win over a few enthusiasts.

    In the long run Bitcoin or other cryptocurrencies maybe could have a significant effect on the economy (I’m doubtful!), but for now it’s just a bad credit card plus a low regulation way to gamble.

  2. Gravatar of Benoit Essiambre Benoit Essiambre
    12. July 2021 at 18:15

    That seems right to me though I do wonder, what if a lot of companies do like Tesla and load up on cryptocoins and this starts a trend that spreads to the financial sector and too many too big too fail organizations having political influence get too intertwined and there is pressure on the FOMC to stabilize cryptocurrencies in the name of economic stability, would there be a risk that this derails monetary policy? I hypothesized a worst case scenario here: https://benoitessiambre.com/specter.html (but correct it if I’m wrong. I’m no expert).

  3. Gravatar of ssumner ssumner
    12. July 2021 at 18:27

    GT, That sounds right.

    Benoit, I’m pretty sure the Fed won’t try to stabilize bitcoin prices.

  4. Gravatar of Brian Brian
    12. July 2021 at 21:05

    If you try to buy a Mavericks hat plus shipping the charge is stated as 70.36 USD then you choose between a credit card or bitpay (Bitcoin). If you select bitpay it shows the exchange rate as 33103.97 USD per bitcoin, and amounts of 0.002125 BTC and 0.000031 BTC which is described as a network cost and a total of 0.002156 BTC. There is a countdown timer that starts at about 15 minutes. Presumably the time limit is necessary because the 70.36 USD charge is “timeless” but the BTC amount is not. In other words the unit of account is USD.

  5. Gravatar of Brian Brian
    12. July 2021 at 21:14

    Sure enough, after 15 minutes, I can try again. The 70.36 USD still applies but the exchange rate is different so the BTC total is now 0.002168 BTC. That’s a little more than before because the BTC exchange rate slipped below 33K USD.

  6. Gravatar of Matthias Matthias
    12. July 2021 at 23:31

    If I learned anything from George Selgin’s writing is that the only real way to overcome bitcoin’s volatility would be through fractional reserve banking or its shadow banking alternatives.

    (Wide spread short selling would also work. Or futures trading.)

    Basically, fractional reserve banking would act as a buffer that can expand and shrink in response to bitcoin demand and velocity.

    Just like fractional reserve banking kept Canadian and Scottish nominal GDP relatively stable during their free banking episodes, even though they used the same gold-as-accounting standard as more volatile places like the US.

    Ironically, the fandoms of bitcoin and of fractional reserve banking don’t have much overlap. But I assume the crypto people Re already re-inventing this concept under a different name.

  7. Gravatar of Fernando Nieto Fernando Nieto
    13. July 2021 at 01:54

    Yes, I’d say that is accurate, Scott. Some people will argue that bitcoin works as a unit of account to price other cryptoassets, because their prices are correlated and may show a lower volatility in BTC terms than in USD terms. I’m reluctant to acknowledge this, as I would be to consider AAPL a unit of account because Nasdaq stocks are correlated.

    The actual use of bitcoin as means of payment is often overstated as well. Apart from black markets and niche use cases, its acceptance is mostly marketing and its use is more ideologic than economic. It makes generally little sense for anybody to pay with bitcoin where it is subject to CGT taxes (imagine reporting each single payment) or you have a fiat denominated income (USD->BTC->USD has a cost, even if the conversion is hidden to improve UX).

    If the definition of a good store of value is about value preservation over every other consideration, volatile assets should be considered poor stores of value. Even if they are preferable when you want to maximize the value of your present wealth at a moment far away in time, despite incurring a risk.

    In my opinion bitcoin is a fantastic invention to safely transfer wealth in space and time, in a context of aggressive agents trying to impede it or get a cut of it, but it doesn’t fulfil the requirements to be a commonly accepted medium of exchange.

  8. Gravatar of Spencer Hall Spencer Hall
    13. July 2021 at 03:38

    All demand drafts from the nonbanks clear through the payment’s system. BTC’s have to be convertible to be a means-of-payment.

    Werner: “But as Friedman acknowledges, Fisher originally included asset transactions. These constitute an important potential use of money M.”

    The Fed’s longest running economic time series, up until the time it was discontinued in September 1996, was the G.6 Debit and Demand Deposit Turnover release. As such, the real-estate boom would have stood out like a sore thumb.

    It was the casualty of President Bill Clinton’s The Paperwork Reduction Act (PRA) of 1995 which “gave the Office of Management and Budget (OMB) authority over the collection of certain information by Federal agencies. It is intended, “among other things, to ‘ensure the greatest possible public benefit from and maximize the utility of information created, collected, maintained, used, shared and disseminated by or for the Federal Government’ and to ‘improve the quality and use of Federal information to strengthen decision-making, accountability, and openness in Government and society.”

  9. Gravatar of Michael Rulle Michael Rulle
    13. July 2021 at 03:42

    I am giving myself a pat on the head. I used my “what would Scott think model” when I asked myself this question a year ago—-or a while ago. I did not specifically include “monetary offset”—-so,I did not get an A——maybe C. My assumption was that all Bitcoin goes thru the financial system ——I.e.it gets converted into currency at market value—-hence I assumed implicitly an offset. However, There is likely a permanent supply equal to its currency value—-which the Fed will not ignore once they believe it is big enough.

    Fed says M1 plus M2 =40.5 trillion. The top 10 crypto’s have a market cap of 1 trillion. There are thousands of crypto’s—-number 10 is worth 13 bil. How much is used for money? My guess is 25% of the black market at the most.

    The Fed needs to keep an eye on it——just like they do paper and metal currency. That is a plug number on the balance sheet——-but velocity of paper and crypto have to be really low.

    Maybe I get a C+.

  10. Gravatar of Spencer Hall Spencer Hall
    13. July 2021 at 03:51

    “JPM has discovered, is that bitcoin’s float may be as little as 5%, if not less”

  11. Gravatar of Michael Rulle Michael Rulle
    13. July 2021 at 03:57

    Re: velocity——I assume the use of crypto as money is extremely low——unless black market is far bigger than we think——but that still does not impact Bitcoin “use of money”——paper and metal would be used instead which the Fed already takes into consideration. On a the margin a teeny bit maybe—-until crypto’s become mainstream they can safely be ignored but still watched.

  12. Gravatar of Spencer Hall Spencer Hall
    13. July 2021 at 04:05

    re: “Fed says M1 plus M2 =40.5 trillion”

    “Inflation is not a problem for this time as near as I can figure. Right now, M2 [money supply] does not really have important implications. It is something we have to unlearn.” Jerome Powell, Chairman of the Federal Reserve

    Num-nuts. The FED’s 400 Ph.Ds. in economics don’t know money from mud pie. All bank-held savings are contractionary. They are simply a shifting from demand deposits, dollar for dollar.

    That’s why Dr. Phillip George’s equations work in his “The Riddle of Money Finally Solved”. There becomes a shifting of liabilities. “When interest rates go up, flows into savings and time deposits increase” ( the ratio of M1 to the sum of 12 months savings ).

    It is hard for the average person to believe that banks do not loan out savings or existing deposits – demand or time. But the DFIs always create money by making loans to, or buying securities from, the non-bank public.


    Economists are vacuous. The only significant turnover in bank deposits is at the transaction’s deposit level.

  13. Gravatar of Spencer Hall Spencer Hall
    13. July 2021 at 04:20

    The solution to secular stagnation is to gradually drive the banks out of the savings business, i.e., to back up, and reverse the direction of political/economic instruction of the last 60 years (that is to increase money velocity).

    I.e., the banks could continue to lend even if the public ceased to save altogether.

    Savings flowing through the nonbanks never leaves the payment’s system.

    See the Fed’s propaganda in their own “Bible”: by R. Alton Gilbert (retired senior economist and V.P. at FRB-STL) – who wrote: “Requiem for Regulation Q: what it did and why it passed away”, 2/1986 Review.

    Dr. Gilbert asked the wrong question. His implicit and false premise was that savings are a source of loan-funds to the banking system. Gilbert assumed that any potential primary deposit (actually derivative deposits, funds acquired from other DFIs within the system), were newfound funds to the banking system as a whole.

    Thereby in his analysis, Gilbert also assumes that every dollar placed with a non-bank deprives some commercial bank of a corresponding volume of loanable funds.

    Pritchard always told me to “go easy”. But that’s not in my character. Pritchard was Phi Beta Kappa. Straight A’s in Chicago and Syracuse (where he taught political economy while getting an M.S. in statistics). He always wore his Phi Beta Kappa key around his neck tie.

  14. Gravatar of Spencer Hall Spencer Hall
    13. July 2021 at 04:36

    “In June, the Consumer Price Index for All Urban Consumers rose 0.9 percent on a seasonally adjusted basis; rising 5.4 percent over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.9 percent in June (SA); up 4.5 percent over the year (NSA).”

    Lending by the Reserve and commercial banks is inflationary (expands both the volume and turnover of new money). Whereas lending by the nonbanks is non-inflationary (matches savings with investment, a velocity relationship).

  15. Gravatar of David S David S
    13. July 2021 at 05:44

    One of the reasons I keep reading this blog (and the other one) is that I’ve been hoping for a clear, definitive explanation of Bitcoin—and all other crypto-currencies. I feel betrayed.

    I do appreciate Nassim Taleb’s evolution and current take on the subject:

    Despite that, I think crypto will persist as highly volatile fetish asset. If it gets used exclusively as black-market and ransom payment instrument we can expect a hard crackdown by government agencies. Perhaps an opportunity for a joint operation by the FBI, the Chinese, and the ECB.

    Why has no one issued a Trumpcoin yet?

  16. Gravatar of Justin Justin
    13. July 2021 at 06:18

    I’ll throw this out there, I’ve heard secondhand that Bitcoin is now being used as a remittance vehicle by Mexicans/Central Americans working in the US. I’m curious if South Americans, particularly Argentinians, are using it as a savings vehicle, if anyone knows. Seems well suited to both tasks.

    Also wonder if this payment link you’ve posted, uses an off-chain solution, or if it’s on-chain. Getting people accustomed to using off-chain will be huge for adoption I figure.

  17. Gravatar of ankh ankh
    13. July 2021 at 09:04

    Hasn’t the world had enough yet of “centralized bankers’ and ‘macroeconomists” planning their lives.

    You are destroying your own country, and many others, with the issuance of SDR’s.

    But instead of talking about the debasement of currency that SDR’s perpetuate, and the inevitable collapse of the USA after the dollar ceases to be the world reserve currency, you are instead focused on whether a retailer uses an algorithm to accept and transfer btc to usd?

    Macroeconomists are lost! They are so utterly clueless.

  18. Gravatar of Justin Justin
    13. July 2021 at 10:29

    David S:

    Bitcoin is stateless internet money. It carries tradeoffs, but it has highly attractive properties as a sort of Focal Point, highly divisible, uncensorable, hard-to-steal, uninflatable, easy-to-move unit of exchange/store of value. This has never before existed in human history, so the full implications and equilibrium uses are only gradually being revealed. Money doesn’t need to be “valuable” in some practical, physical sense. Stone Money of Yap, cowrie shells, have been used in the past, because it’s useful to have a consensus MOE/SOV.

    If you don’t like Bitcoin, then don’t hold it. Following Taleb’s lead and being nasty about it online isn’t good for you. Lastly, let me applaud your decision to embrace poverty.

  19. Gravatar of Derek W Derek W
    13. July 2021 at 11:21

    I’ve learned a tremendous amount about money and economics from Scott and this blog over the years.

    Bitcoin is the most credible rules-based money to exist.

  20. Gravatar of David S David S
    13. July 2021 at 11:43

    Justin, being poor and nasty is the only way I maintain street cred with my fellow socialists.

    And speaking of socialism, when do we get a CBDC—call it something like FedBucks or Friedmans? I know that such an instrument would wreck the profit margins of Paypal and Visa, but so what?

  21. Gravatar of David S David S
    13. July 2021 at 12:11

    I should learn to keep my mouth shut. Tim Taylor anticipated my stupid question nearly a month ago:


  22. Gravatar of Spencer Hall Spencer Hall
    13. July 2021 at 16:50

    Buy bitcoin as N-gDp level targeting doesn’t work.

    By Joseph Carson, former chief economist of Alliance Bernstein

    “Consumer prices (CPI) increased at an annualized rate of 7.3% during the first six months of 2021, while core consumer prices rose 6.2%. Both represent the most significant gains in several decades. As important as the rise in consumer prices is for the general public and policymakers, there still is a lot of misinformation and false statements about the current inflation cycle. Below are some of the misstatements and false impressions.

    “CPI inflation of 2021 is not as high as that of the 1970s—False.

    It’s not possible to compare inflation across several decades because of significant changes in measurement. The CPI of the 1970s included house price inflation, and the current measure does not”

  23. Gravatar of Spencer Hall Spencer Hall
    14. July 2021 at 04:02

    It’s not just Powell, it’s the entire economic profession.

    Jerome Powell: “Inflation is not a problem for this time as near as I can figure. Right now, M2 [money supply] does not really have important implications. It is something we have to unlearn.”

    Alan Greenspan: “The historical relationships between money and income, and between money and the price level have largely broken down, depriving the aggregates of much of their usefulness as guides to policy. At least for the time being, M2 has been downgraded as a reliable indicator of financial conditions in the economy, and no single variable has yet been identified to take its place.”

    These people are our leaders and are dumber than a rock. They should be condemned.

    Rates-of-change in monetary flows, volume times TRANSACTIONS’ velocity, equal RoC’s in P*T in American Yale Professor Irving Fisher’s truistic: “equation of exchange”. E.g., non-GDP transactions or financial transactions are not random.

    Parse: date; real-output; inflation (preliminary, as Jerome Powell has delayed the announcement of the money stock)
    02/1/2020 ,,,,, 0.05 ,,,,, 0.03
    03/1/2020 ,,,,, 0.20 ,,,,, 0.21
    04/1/2020 ,,,,, 0.33 ,,,,, 0.40
    05/1/2020 ,,,,, 0.40 ,,,,, 0.46
    06/1/2020 ,,,,, 0.44 ,,,,, 0.50
    07/1/2020 ,,,,, 0.44 ,,,,, 0.53
    08/1/2020 ,,,,, 0.45 ,,,,, 0.56
    09/1/2020 ,,,,, 0.45 ,,,,, 0.61
    10/1/2020 ,,,,, 0.53 ,,,,, 0.68
    11/1/2020 ,,,,, 0.77 ,,,,, 0.79 (stimmies dilution to #s)
    12/1/2020 ,,,,, 0.84 ,,,,, 1.26
    01/1/2021 ,,,,, 0.65 ,,,,, 1.31
    02/1/2021 ,,,,, 0.66 ,,,,, 1.41
    03/1/2021 ,,,,, 0.70 ,,,,, 1.51
    04/1/2021 ,,,,, 0.71 ,,,,, 1.60
    05/1/2021 ,,,,, 0.78 ,,,,, 1.65
    06/1/2021 ,,,,, 0.79 ,,,,, 1.77
    07/1/2021 ,,,,, 0.76 ,,,,, 1.81 real output peaks (stocks peak)
    08/1/2021 ,,,,, 0.55 ,,,,, 1.79 inflation peaks
    09/1/2021 ,,,,, 0.27 ,,,,, 1.72

    It’s the triumph of good theory over inadequate facts

  24. Gravatar of Spencer Hall Spencer Hall
    14. July 2021 at 08:54

    The U.S. is now on the same path, the “economic bubble in Japan from 1986 to 1991 in which real estate and stock market prices were greatly inflated.” Larry Summers said the same thing. Economists are hell bent on destroying America. The FED obviously is winging it because they have no target for R-gDp, nor inflation. That’s because they know little about macro.

    All you have to do is look what’s happening in California. The homeless populations are growing. California now has Hoovervilles.

    The Keynesian economists have achieved their objective, that there is no difference between money and liquid assets (the Gurley-Shaw thesis).

Leave a Reply