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Comment by pcmonk | Hacker News Reader

Using bitcoin for transactions won't help if the merchants immediately sell them (all the buying pressure just got cancelled out). Right now, bitcoin is only held in large quantities for speculation. Speculation, as he notes, has only worked for temporary bubbles.

He says that bitcoin isn't failing, but I don't see how it can succeed. It doesn't make short-term economic sense for individuals to either mine or buy bitcoins, so it seems like the only people buying bitcoin will be those who are either speculating or who simply want it to succeed. That doesn't seem sustainable. Can anyone explain why he is still optimistic about bitcoin?

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I think, especially in emerging markets, merchants will eventually hold bitcoin.

Why? Why wouldn't they just sell it immediately, for all the reasons why merchants sell it now?

Because if you're in Argentina, you can only sell them for Argentine pesos, which aren't a clear winner over bitcoins.

So, we're going to try to stabilize our currency by tying it to every failing currency across the world? If bitcoin gets mainly used as a replacement for hyper-inflationary currencies, then it's never going to be a viable alternative to an even marginally strong currency. Tying all the world's currencies together isn't going to create a stronger currency than, e.g., the dollar or the euro. Thus, those who work in dollars or euros have economic reasons not to use bitcoins.

People judge currencies by utility and future expected value. Developing economies have far more reason to use bitcoin than developed ones, but that shouldn't make it any less attractive. My paycheck is in dollars, but that doesn't mean I have an incentive for dollars to be worth more when compared to bitcoins. I can easily exchange between the two based on my view on their utilities and future expected values.

If Bitcoin is legal, easy, and cheap to use in developed economies, it doesn't matter where it starts being the most useful. It will spread everywhere.

For developing economies with unstable currencies, does Bitcoin add anything to their current currency situation? Many countries, for example, use black market US Dollars for transactions. It's not clear yet if these countries with limited technical infrastructure will see a win of Bitcoin vs. USD cash, at least in the short/medium term.

Sure, BTC might win out of Argentinan Pesos, but it's certainly harder for the average merchant in Buenos Aires to accept and transact using BTC vs. paper USD. The barrier to entry to accepting foreign USD for transactions is 0; for BTC the entry is more difficult (currently).

Well technically if you're a bitcoin merchant you can just as easily convert to USD or any other currency that is more stable than the Argentine peso.

How? Few Argentines have USD bank accounts, so there's no electronic market where they can sell bitcoins for dollars. They can buy dollar bills with bitcoins on the street, but that's not really scalable.

If you have assets in BTC, you can easily cash them out for USD into an American bank account. Setting up a holding company in Delaware is cheap and easy.

I see only three good reasons for a merchant to hold reserve in bitcoin: 1) pay their employees, 2) pay their suppliers, or 3) good old speculation.

When you start to see large suppliers get into the market then you'll start to see a decrease in immediate conversions.

In emerging markets, holding bitcoins can be less about speculation and more about preventing one's savings from losing value. It's all relative.

Holding USD is the standard way people in emerging markets prevent savings from losing value.

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