Why Isn’t Bitcoin Interesting To Leading Economists?

Economists-Inquire.jpg-550x018 Nov 2013 / Forbes – I’ve fielded variants of this question from non-economists many times. I always respond with the same question: What does Bitcoin have to teach us about the economy? 

From a practitioner’s point of view, Bitcoin is small change. The total value of all Bitcoins is currently about $5 billion (according to Bitcoin Watch). That’s on par with a single mid-cap stock. So Bitcoin circulation isn’t really worth watching – the aggregate affect of Bitcoin purchases on the broader economy is bound to be minimal no matter who holds them or how they’re spent. Are Bitcoins having an outsized impact on select sectors of the economy, such as illegal drug and arms purchases? Possibly, but that’s more a concern for law enforcement than economists. At the moment, Bitcoins just aren’t a relevant metric for banks and other market institutions.

From a researcher’s point of view, has the operation of the Bitcoin market surprised us or forced us to reconsider our understanding of currency markets? As far as I can tell, no. The world has extensive historical experience with fiat currencies, including ones circulated privately by banks. (See, for instance, the so-called wildcat banks which operated in the US until the passage of the National Bank Act of 1863.) We know a lot about how currency markets operate and the factors determining inflation, exchange rates, and circulation. Bitcoin is uniquely decentralized, but Bitcoin economics aren’t fundamentally different from those of any other currency. In fact, they’re simpler – inflation is highly predictable, and nobody has to forecast central bank policy……….Read more


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