Bitcoin. Is. Not. An. Asset



Whatever the origins of bitcoin and other cryptocurrencies, ultimately their value will be determined by their utility as a means of exchange.

The next big test of bitcoin is whether it can facilitate credit transactions, the exchange of present for future money.

Finally, to determine whether the recent volatility in bitcoin is related to any hoarding of bitcoin, it is useful to measure its velocity, relative to cash.

By all of these measures, bitcoin has not reached the point where it can be considered a medium of exchange, like cash, to facilitate transactions.

Does it pass the blue cheese test?

In the Tale of Two Cities, Charles Dickens’ protagonist descends into the bowels of a bank; we are told that they kept him there in “a dark place, like a cheese, until he had the full Telson’s flavor and blue-mold upon him.” Money, in order to be a medium of exchange has to pass the “blue cheese” test. It has to have the stability of finely-aged blue cheese, in order to facilitate the business of the market. Of course, money changes value, through inflation or deflation. But such changes take place gradually. Market transactions take place gradually, and money, as the unique medium of exchange has to follow suit.

According to, the value of cryptocurrencies is plunging. That, by itself, should be a cause for concern. But more importantly, the question is, over a relatively long term, does bitcoin have the stability to pass the “blue cheese test” for money. The following graph compares the change in the value of cash to that of bitcoin. In fact, between 2013 and 2015, bitcoin’s values pretty much changed with that of cash, obviously with the changes accentuated. But the story doesn’t end there.

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