Updated: Oct 26, 2022
The adoption of electronic payment systems ( PayPal, Apple Pay) along with digital currencies has left many people to ponder the age-old question- What is money? Rather than sharing my thoughts on it, I will defer to a far greater mind to answer this quandary.
In 350 BC, Aristotle analyzed the problem of commensurability. He explains that money was introduced to satisfy the requirement that all items exchanged must be comparable in some way. He discovered that money needs to have certain characteristics and must represent a unit that supplies a measure on the basis of which an exchange can take place.
Aristotle defined the characteristics of a good form of money as:
1) It must be durable. Money must stand the test of time and the elements. It must not fade, corrode, or change through time.
2) It must be portable. Money holds a high amount of 'worth' relative to its weight and size.
3) It must be divisible. Money should be relatively easy to separate and re-combine without affecting its fundamental characteristics. An extension of this idea is that the item should be 'fungible'. Dictionary.com describes fungible as:
"(esp. of goods) being of such nature or kind as to be freely exchangeable or replaceable, in whole or in part, for another of like nature or kind."
4) It must have intrinsic value. This value of money should be independent of any other object and contained in the money itself.
Is bitcoin money and does it qualify under characteristics outlined thousands of years ago?
For his sage advice, Aristotle would gladly accept your bitcoin.
Markets and prices may not be able to sustain parabolic moves but the adoption of new technology can. This graph is very busy, but if you applied digital currencies they would only make a scratch .
"The future is unwritten" Joe Strummer
Tonight starts the trading of bitcoin futures on the CBOE followed next week by the CME. Nasdaq and Cantor exchange, with binary options , will be shortly joining the frenzy of digital currencies as wall street jumps into the fray. This presumably will allow bigger players the opportunity for exposure to this exciting new asset class on both the long and short side. It may also gives us some important data on how institutions view digital currencies. As futures gain traction we will start to see a forward curve which i will point out is entirely different than a forecast. The forward curve tells us what we are willing to transact future business today. So what will the curve look like? I suspect the curve to be contango initially than gradually flattening. Keep in mind the contracts are not very long dated to start and are cash settled. The real question is how this will affect the spot market with all these fledgling electronic exchanges that will supply the data for settlement prices.
Will the spot price continue to rise as a hedge to futures buying? will it be driven by a function of FOMO (fear of missing out) or will the skeptics try to extract a pound of flesh from weak retail longs. This all remains to be seen, but I am reminded of the 17th century mathematician Blaise Pascal who famously put the condition on the belief of God into a formula of risk/reward. It makes me wonder; are so many Satoshites around the world ready to make their Pascal Wager?
