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Comment by j_barbossa | Hacker News Reader

One argument critics bring in I don't understand is that Bitcoin is too volatile to be a currency. If a zoned market solely accept Bitcoin and a good costs say 1 BTC, why does it matter if the BTC-to-USD price is increasing or decreasing? For the zoned market it's still 1 BTC for said good.

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I think it has to do with the connections to other currencies. If you sell something priced in Bitcoin, that you acquire in dollars, you’re exposed to that volatility.

Say you sell gold retail. You collect Bitcoin. Then turn around and need dollars for buying more gold.

Same situation for any import really.

It also applies to debt. If your debt is denominated in dollars and you’ve been collecting and saving Bitcoin when Bitcoin surges vs the dollar debt is less of a burden. And vise versa. Similar to the sort of problems emerging markets dollar denominated debts have faced many times.

Exactly. If I am from Turkey, earn a Turkish Lira for salary, and pay for stuff locally in Turkish Lira, you might be tempted to think that currency exchange moves don't impact me.

That would be very very wrong, and one trip to any store would immediately wake you from that fantasy.

Supply chains are global. Local prices are based on the GLOBAL costs and global exchange rates.

Stability is critical. A small business will die with Bitcoin level volatility. Their margins might be 5%. A 15% shift in prices will drive them bankrupt in a day.

That's a mighty big if though, since to a first approximation nothing except maybe ransoms is priced in Bitcoin. Most shops notionally accepting it actually set prices in USD and simply convert as needed.

That. What is actually denominated in BTC?? For that, you’d need a substantial economy in which most factors of production (including wages) are denominated in BTC.

This is only true if its zoned market in the sense that the country is self sufficient and relies on no foreign imports, which is rarely the case.

Products from outside that market will have a fixed cost in a different currency, someone has to assume a risk and lose/profit from it.

This happens a lot currently but usual currencies dont fluctuate this much.

As example, I dont expect El Salvador to build iPhones anytime soon and the price for that is usually fixed in USD

That never holds. Arbitrage will cause prices for goods to be equal in USD and BTC. https://www.investopedia.com/terms/a/arbitrage.asp

Unless you control the whole market via price controls but those eventually break as well. https://www.investopedia.com/terms/p/price-controls.asp

Bitcoin is volatile not in relation to USD, but to "real prices". USD or EUR are just more stable in relation to those, so it's convenient to measure BTC in USD. You can't fix the prices in BTC because you'd soon find that you are overpricing or underpricing in relation to real supply and demand of all the stuff around.

Here's one. If you have 1 BTC and it pays for a sandwich, but that same BTC is worth a thousand sandwiches elsewhere, why would you spend it in the zoned market? Likewise, why would the sandwich shop put the btc back into the local economy?

> If a zoned market solely accept Bitcoin and a good costs say 1 BTC

The problem is that nobody selling regular goods WANTS to sell his goods with a fixed bitcoin price; the volatility of bitcoin would make it easy for buyers to buy the goods only when their prices where especially low in non-crazy-volatile currency and resell the goods at a favorable price immediately. There's arbitrage there

This is true of other currencies (usd being the global reserve currency) as well though.

No sellers want the Argentine peso or Zimbabwean dollar either.

The world does not work like that, if they starts selling bananas for 1btc (or 0.0000001, but in 3years the btc price goes to 500k) people from all over the world would go to el salvador to sell bananas to send btc abroad. i dont get why they didn't enforce the use of a stablecoin in addition of btc tho, that would be better

Unless the market is an autarky, it's a problem. Say you're a company that buys a bunch of components, many from overseas, assembles a widget from them, and sells it at a 5% margin. You're probably ordering your components ahead of time, because that's how it's done. At that point, significant volatility becomes a big problem.

If you want to import anything at all you need foreign currency. One of the ways you can do this is by exporting goods, of course, but you could also sell some of your local currency in exchange for dollars or whatever. Bitcoin volatility makes this harder. Also I’m guessing that volatility makes it hard to get foreign currency loans collateralized by BTC

Because for import/export currency volatility matters a lot. 99% of goods depend on import in some way.

Why should BTC advocates care about USD inflation if this argument holds? The value of USD goes down but it doesn't matter because my rent and salary are both denominated in USD. But avoiding inflation is one of the major ideological reasons why advocates support BTC.

I think, the main issue is, that the BTC price is affected by the outside world AND that the country has to import things from the outside world.

What you said would probably work if you had a token that was only minted and traded in only one country.

Unless the zoned market is fully self-sufficient, it would still rely on trading without outsiders. The trade between the zoned market and the outside would still cause the volatility to leak into the market.

Let's say you buy a house for 1 BTC. I sell that house for $250K. Two things can happen:

* I made a profit if acquiring that 1 BTC cost me a lot less than $250K

* 1 BTC = $250K

What about import/export prices? The matter is especially important for a small country, which relies heavily on the international trade.

They don’t solely accept btc. They accept it in addition.

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