Should I Use Bitcoin for Saving?

Bitcoin is for Savers; fiat is for debtors

One of the most common misconceptions that I hear in the bitcoin space is that “If you don’t spend your bitcoins, then it will never reach mainstream adoption”. While it’s good to use your bitcoins as a medium of exchange, the only way that mainstream adoption will ever be possible is if someone else first wants your bitcoins as a store of value. Since most people seem to use bitcoin for saving or some sort of safe haven asset, it is only a matter of time before it finds itself being used as a de facto medium of exchange in communities around the world.

Bitcoin is for Savers

Ok, so you finally got some bitcoin. Now what? What should you do with it? You should save it for later because bitcoin is deflationary by design and deflation is for savers.

In economics, deflation is a decrease in the general price of goods and services due to the rising value of a currency or monetary unit. This means that over time, deflation enables people to purchase more goods and services with the same amount of money. So, as the price of bitcoin continues to climb, the cost of goods and services will continue to fall. Imagine how much easier it would be to save for a car or a down payment on a house when your purchasing power increases over time.

This bitcoin meme has been circulating since bitcoin’s inception and it will continue to evolve as more people save their bitcoins.

Bitcoin is Deflationary by Design

Most modern economists generally believe that deflation is bad for economic activity because as the value of your currency continues to rise, it typically reduces spending and increases the real value of debt. This wouldn’t be such a problem if the majority of modern societies weren’t based entirely on debt and consumption but that isn’t the case. Can you imagine how much debt you wouldn’t have if your purchasing power increased over time?

You might also hear economists claim that bitcoin will never work because most people “hoard” their bitcoins. What they don’t acknowledge is that the word “hoard” is just their biased way of saying “store value” or “savings” and contrary to what you may have heard, savings is actually a very good thing for a healthy economy. People will save their bitcoins until their needs and wants outweigh their desire to hold their bitcoins. Eventually, two or more parties who recognize bitcoin as a store of value will naturally find a way to use bitcoin as a medium of exchange and it will only grow from there. Within the next decade, Bitcoin and the crypto economy will prove to be one of the healthiest economies in the world and it’s primarily thanks to their deflationary economic model.

In short, a deflationary money system incentivizes savings, discourages debt, discourages waste and over time, creates more purchasing power for the society that uses it. Now let’s take a look at how inflation does pretty much the exact opposite.

Fiat is for Debtors

In economics, inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. Currently, the inflation rate of the US Dollar is about 3-5% annually which means that a $100 item at the store today will likely cost you $103-$105 in exactly one year. What this also means is that if you do not get at least a 3%-5% pay raise each and every year, you are working just as hard for less purchasing power. The end result is either a lower standard of living for the same amount of labor or the same standard of living for an increased amount of labor. You either end up with less time or less money to do the things you want.

The majority of fiat money supplies are inflationary and based on money being printed out of thin air from a central bank and then lent to other large banks at interest. The money is then lent out to smaller banks (again, at interest) and then eventually the money is finally lent to people like you and me (yet again, at interest) in form of home loans, business loans, auto loans, student loans, credit cards, secured loans, unsecured loans, lines of credit and a number of other debt based financial instruments.

After all of that interest bearing debt has worked its way down to people like you and me, we end up paying up to 20% interest just to get small loans for things like buying a car or investing in education. The entire system is based on putting people into debt to the banking system and that is only if your credit score is good enough to be worthy of debt.

But wait, the debt ripple effect doesn’t stop there. It keeps going by directly affecting the purchasing power of the currency that is being inflated.

Back in 2007, the country of Zimbabwe was the victim of their government hyper-inflating the money supply. Month-to-month inflation rates had exceeded 50% which ends up to compound to about 12,000% annually. This means that for the people of Zimbabwe, something that cost $100 on the first of the year would cost $12,000 exactly one year later. Yes, you read that correctly. You don’t need to be an economist to see that it doesn’t make any sense to save when money loses its purchasing power that quickly.

In short, inflation incentivizes debt, incentivizes consumption, discourages savings and reduces purchasing power of everyone within an economy. It is no wonder why countries that struggle with high inflation rates, tend to find themselves in economic turmoil.

Why Use Bitcoin for Saving?

Bitcoin is going to continue to reach new all time highs and with each and every article that gets published, people start asking what bitcoin is and how they can get some and use it as a store of value.

The primary use case of bitcoin today is as a store of value like a savings or an investment but in the not so distant future, we will see bitcoin and other cryptocurrencies like bitcoin emerge as the dominant medium of exchange in a growing number of communities around the world.

Take Action. Use Bitcoin.

Additional Info

Here are some other good articles and sources on hoarding, I mean…saving your bitcoins.
I’m Hoarding my Bitcoins, and No You Can’t Have Any

Do you think bitcoin is the best financial tool for saving? Let us know with a comment below or a tweet at @BitcoinReasons

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Does Bitcoin Create Opportunity?

Reason to use Bitcoin #58: Opportunity for gain far outweighs the risk of loss.

If you do any looking, you can easily find articles articles about bitcoin all over the internet. I’m talking about trusted media sources like Forbes, Wired, CNN and The Wall Street Journal just to name a few. What’s interesting about all of these publications is that they all make note of how volatile and risky it is to put your money into bitcoin yet not enough of them highlight the opportunities that Bitcoin creates.

Is there no opportunity for gain with Bitcoin? or is it just one massive risk? Surely if there’s a risk then there is a potential reward for that risk, right? Well, allow me to show you how opportunity for gain with Bitcoin is much greater than the risk of loss.

To explain risk, I am going to use some gambling terms that you might be familiar with since gambling is such a massive risk.

“Even money” is a common term at almost every Casino. For every dollar you wager on an even-money bet, you will get an additional dollar back if you win. You risk 100% of your bet in an attempt to win a 100% profit but you are only capable of gaining what you are willing to risk. If you ask any investor, a 100% gain is unbelievably good but not if you are risking 100% of your investment to get it. This is why it’s smart to put money into stocks, mutual funds and all those other legacy finance tools. These are often a safe risk with a safe return.

Now, what about betting on the calculated risk of Bitcoin? Let’s take a look at both the risk or loss and the opportunity for gain. For this observation we are going to use the price of Bitcoin from February 3rd 2016 of $350 USD

Bitcoin and The Risk of Loss

If Bitcoin completely fails, you will lose 100% of your investment. This outcome is very unlikely because you will almost certainly sell it before the price hits the bottom so you probably aren’t “risking it all”. So, let’s just say that something terrible happens and the price of bitcoin falls to $180 and then you decide to sell it cause you think it will only go lower. That means that you losses would be somewhere between 0% – 50%.

Now lets look at bitcoin’s upside.

Bitcoin and The Opportunity for Gain

If bitcoin “succeeds” and achieves mass adoption, the price will increase substantially with market demand. I don’t know how substantially but a single coin went from being worth just fractions of a penny to now being worth about $350 USD at todays price. To date, the highest price that Bitcoin has ever reached is $1,216.73 USD which happened back in 2013. That’s about 325% more than todays price. So in comparison to todays price, the opportunity for long-term gain is at least 0% – 325% (since we have already observed it going so high before) and since the supply of bitcoins is steadily decreasing while the awareness and demand are steadily increasing, it wouldn’t be surprising if we see that create upward pressure on the price over time.

Although we have no idea what will happen in years to come, we can make educated guesses as to what will happen as bitcoin’s scarcity grows so why not take a calculated risk on one of the worlds most exciting emerging markets and bet on the long term success of a unique new open-source software called bitcoin. I think you will be glad you did.

What are the risks and opportunities with your local currency? Let us know with a comment below or a tweet at @BitcoinReasons

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