Bitcoin has gained global popularity and acceptance for the past decade since its creation in 2009 by Satoshi Nakamoto. People have referred to this digital currency as many things, including digital money, digital gold, an asset, an investment, and the future of finance. Despite being volatile, the value of this electronic currency has increased dramatically over the past years. This virtual currency is an excellent medium of exchange, a store of value, a hedge against inflation, and a worthy investment. The most significant debate, however, is whether this electronic currency is a commodity or a currency.
Bitcoin as a Commodity
This electronic currency is notoriously volatile and increases or decreases within a short period; hence struggles a lot to remain stable enough to be a currency. Moreover, this digital asset is decentralized; meaning no financial institution or government can regulate or manipulate the currency. This lack of regulation makes Bitcoin, not an excellent investment, as some investors prefer investing in a coin with the backing of a government. Fiat currency has a stable value as the government backs it.
On the other hand, commodities are goods that can be changed or traded with other goods of the same type. Thus, a commodity from one producer is the same as that produced by another. Gold, grains, and foreign currencies are some examples of commodities in the real world. Bitcoin is now on the commodity list. For instance, in America, the Commodities Futures Trading Commission selected this virtual currency as a commodity in 2015.
Commodities like this virtual asset traditionally have higher price volatility than assets like property. Therefore, these commodities are significant speculative assets. One can use them to predict the rise and fall of the value of this digital money and hence plan their trading strategies accordingly. This speculating trading creates futures trading, a marketplace where people try to predict how this virtual asset will swing.
This digital currency as a commodity seems to work in two perspectives: day trading or short-term investment and buying and holding with a long-term goal. Also, this virtual currency as a commodity is more regulated than it is as a currency.
Bitcoin as a Currency
This electronic currency is an excellent medium of exchange that people can use to purchase many things, especially online. For instance, the first time people used this cryptocurrency as a currency was when Laszlo Hanyecc paid 10,000 Bitcoins to buy two pizzas. People commemorate this day as Bitcoin Pizza Day. Since the first purchase, multiple online websites have now accepted Bitcoin payments. Also, well-established businesses like Microsoft, Starbucks, PayPal, and many more now accept these electronic money payments. Therefore, people are not worried about where they can spend their Bitcoins. So, if you want to pay for a product using Bitcoin, you can do so through “Bitcoin Prime”.
A currency’s viability depends on its volatility and stability. However, this digital currency’s volatility makes it challenging to value goods and services appropriately. For instance, you might currently sell your goods or services and receive Bitcoin payments, and this virtual asset’s value drops the next day drastically. Therefore, a significant currency should maintain a stable weight like conventional currency.
Eventually, even though you can use this virtual currency to buy and sell things, the majority of these virtual currency holders believe that the money could be more valuable as something else but not a currency.
The Bottom Line
Bitcoin can be a currency or a commodity depending on who you ask. Different people use this virtual asset for other purposes. For instance, if you purchase coffee at Starbucks and pay with Bitcoin, it functions as a currency. Still, if you buy this digital currency as a speculative asset, it works as a commodity.