Calling It a Currency Doesn’t Make It So
May 21, 2021
By: Dylan Ratigan
A commonly accepted definition of currency is something (coin, treasury notes or bank notes) in circulation as a medium of exchange. Inherent in that definition is some semblance of stability. A shop owner is not going to accept as payment something that can increase or decrease in value 100% before you even walk out of their shop. For a currency to effectively function as such, there needs to be a certain level of reliability as a store of value. Crypto ain’t it.
Bitcoin, ethereum, polkadot, dogecoin, pick your poison. They’re all designed to facilitate transactions (except dogecoin, which is what happens when the class clown becomes valedictorian). They’re fast, efficient, free of traditional currency constraints such as central banks and less costly to use. If I leave my house, head to Thailand and forget to convert my US dollars to Taiwanese baht, I can still buy food off a street vendor with crypto. I don’t have to go to a currency exchange where I’ll pay some exchange rate. I just take out my phone, beam over some crypto and get my food. Sounds great! The problem is, when the food vendor can’t control their margins because the currency with which I just paid keeps changing in value. There’s no store of value that can be relied upon. There’s no stability. Ultimately, there’s no transactional value.
So let’s do this. Let’s stop calling them crypto “currencies”. Instead, let’s call them crypto “assets” or, if we want to think of them as the end to hegemonic fiat currency, crypto “nytes” (see what I did there?). These aren’t currencies. I have actual bills to pay and I can’t call the bank holding my mortgage, tell them the crypto I sent for this month’s payment used to be worth $2000 and I’m sorry it’s now only worth $200. That’s not going to fly. Until I can rely on that $2000 valuation to still be worth $2000 next week, month or year, I can’t rely on it for traditional currency purposes.
Currencies need to facilitate transactions. They need to be semi-stable. In theory, there should be some level of scarcity to them and in this sense, crypto actually does have an advantage to traditional fiat currencies. But that advantage is more akin to precious metals, like gold. The next time you go out for dinner, try paying with a brick of gold and then carving off a few more shavings for the tip. It’s just not convenient. And that’s the rub with crypto as well.
Current crypto products may one day evolve into commonly accepted means of payment. They may become as ubiquitous as paper currency. That could be a very good thing. It could make buying goods from remote regions of the world that lack safe and secure banking easier. It could cut down on counterfeiting. Money stolen as part of a scam could be tracked down and returned to the rightful owners. There are infinite possibilities for crypto currencies, but we’re not quite there yet, folks.
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
tastytrade content is provided solely by tastytrade, Inc. (“tastytrade”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. tastytrade, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastytrade is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request. tastytrade is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities products, please read the Characteristics and Risks of Standardized Options and the Risk Disclosure for Futures and Options found on tastyworks.com.
tastyworks, Inc. ("tastyworks") is a registered broker-dealer and member of FINRA, NFA and SIPC. tastyworks offers self-directed brokerage accounts to its customers. tastyworks does not give financial or trading advice nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastyworks’ systems, services or products. tastyworks is a wholly owned subsidiary of tastytrade, Inc (“tastytrade”). tastytrade is a trademark/servicemark owned by tastytrade.
Quiet Foundation, Inc. (“Quiet Foundation”) is a wholly-owned subsidiary of tastytrade The information on quietfoundation.com is intended for U.S. residents only. All investing involves the risk of loss. Past performance is not a guarantee of future results. Quiet Foundation does not make suitability determinations, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of Quiet Foundation’s systems, services or products.
Small Exchange, Inc. is a Designated Contract Market registered with the U.S. Commodity Futures Trading Commission. The information on this site should be considered general information and not in any case as a recommendation or advice concerning investment decisions. The reader itself is responsible for the risks associated with an investment decision based on the information stated in this material in light of his or her specific circumstances. The information on this website is for informational purposes only, and does not contend to address the financial objectives, situation, or specific needs of any individual investor. Trading in derivatives and other financial instruments involves risk, please read the Risk Disclosure Statement for Futures and Options. tastytrade is an investor in Small Exchange, Inc.