Which brings us to Tesla’s decision to purchase bitcoins worth $1.5 billion. The futurist transportation company isn’t the only one. Among others, Tysons Corner, VA-based Microstrategy announced holdings of 70,000+ bitcoins in 2020.
The purchases herald a better monetary future. This is true even though bitcoins aren’t presently very useful as money. They’re not when it’s remembered that no one buys, sells, lends, or borrows “money.” In truth, all financial transactions signal underlying resource exchanges. With buying, selling, lending, or borrowing it’s always products for products. Money changing hands signals goods and services moving around, and when money is saved and borrowed, the latter merely signals the transfer of resource access to the borrower now so that the lender can achieve greater resource access (through interest paid) in the future .
As of now, Bitcoin doesn’t work very effectively as “money” precisely because the value of each coin is so volatile. Really, how many among us would comfortably buy, sell, lend or borrow in bitcoin? The potential for huge losses is endless when it’s remembered that a year ago a bitcoin fetched roughly $10,000. As of now, one is exchangeable for $46,900. Someone who borrowed in bitcoin one year ago with a promise to pay back in one year is presently hurting. Someone who purchased in bitcoin one year ago is similarly licking his wounds. Lenders and sellers? Perhaps not as much.
What’s important is that what’s volatile isn’t money. Real money is unchanging, like the foot, inch, or tablespoon. Just as the foot is an agreement about length, and the minute an agreement about time, so historically is money a timeless agreement about value. Money quite simply is . Money is quiet. The quieter money is, meaning the less volatile that money is, the more wealth that can be exchanged, and the more wealth that can be pushed to its highest use.
Still, Tesla’s purchase signals an exciting future. It signals currency competition. Musk is arguably saying that while the dollar is the world’s currency, and per Keynes the most “convenient” currency to referee transactions, it’s no longer wholly trustworthy. Tesla will diversify.
Even better, Tesla is adding its name to a small but growing list of companies that will accept alternate currencies. This is the really big story. Think about it. What would you the reader prefer to earn? A J.P. Morgan dollar, a Walmart dollar, an Amazon dollar, a Facebook dollar, or a Federal Reserve Note? Please think about this with Treasury’s oversight of those Federal Reserve Notes top of mind. In 1971 those dollar notes purchased 1/35th of an ounce of gold, while today a dollar buys less than 1/1800th. Do you think JPM, WMT, AMZN and FB could get away with such poor currency management? Asked and answered.
The bullish future that Tesla seems to be helping to usher in is one of private monies replacing government money, of individuals asking for compensation in money they trust over money that governments haven’t always overseen in trustworthy fashion.
If Tesla starts exchanging cars for bitcoins, so will others. And private money will start circulating, thus slowly pushing out government money. Gresham’s Law will yet again be exposed as a myth in this bullish future as real, private money that holds its value in stable fashion throughout time pushes out the volatile. This includes bitcoin.
Elon Musk is helping to bring the future into the present. We’ll all be better off as a result.