Explaining Southern California's economy

Commenting on the commenters: Bitcoin

Mercer 21196

Mark Scott

I've been getting a fair number of comments on my Bitcoin post from a few days back, itself a response to Fred Wilson's Bitcoin post. Most think I'm completely wrong about Bitcoin and its future as a form of currency. Some commenters are particularly upset by my assertion that Bitcoin is illiquid — by which I mean its value isn't predictable enough for it to function as a ready medium of exchange (although it's not that simple because liquidity is a cryptic concept, used commonly in finance in a sort of metaphorical sense, but ill-defined and misunderstood, really reverse-engineered from its features, one of which is predictability of price).

Here's a sample, from MoonShadow:

The true irony of this article is that Bitcoin is nearly perfectly liquid, even though it's ultimately deflationary. I know what liquidity is, liquidity is the ability of economic actors to engage in exchange rapidly and with as few intervening steps as possible.  This is why cash is very liquid and real estate is not.  Bitcoin is very much like cash in this respect.  Go try and tell Bitcoin users that Bitcoin is illiquid, and they will laugh at your ignorance. The only people for whom Bitcoin is not liquid are those who don't have any.

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